of the week ahead

Transcript

Matt Jones

Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.

My name is Matt Jones, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.

Welcome back, Neil. Great to have you here with us again.

Neil Staines

Thanks very much Matt, great to be here.

Matt Jones

So looking into the week ahead, I think all eyes on the UK this week in particular, although other notable events across the world be it China, Europe or the US. Perhaps you can outline your thoughts as you look into the week ahead.

Neil Staines

Absolutely, yes, thanks Matt. In some respects, next week is a bit of a transition week between Remembrance Sunday, a time to step back and perhaps reflect, and Thanksgiving the week after, perhaps signalling the beginning of the end of this year and a chance to look forward to next year.

In a kind of fitting balance of reflection and anticipation, our focus returns to the UK next week. Firstly, you have the September employment data. We're still ahead of the all important post-furlough reading that likely guides the near-term monetary policy response. But the September figures may give a guide to labour market momentum going into the end of fiscal support, and the October claims data may also give us some valuable clues. Secondly, while we don't get the October employment data, we do get retail sales data for October, so there may be some indications of any employment friction on consumer demand, potentially offset by early Christmas shopping amid fears of supply shortages closer to the festivities. Last minute shopping may be slightly riskier business this year. And lastly, we get UK inflation data for October. The markets are expecting a jump to 3.8% from 3.1% in September, deeper into letter-writing territory for the Governor and unlikely to be the high for this cycle. In fact, this is going to return the focus to the prospect for UK rate hikes. Sterling has traded heavily since the Bank of England disappointed the expectations of many, but unlike Europe or Australia, where near term rate hike pricing made little sense, rates will effectively very likely rise over coming months in the UK. So we stick to our long-held now February left off call.

Next week, we also get the China suite of data for October: retail sales, industrial production and investment and employment data. Now, China has been a big focus for global markets and sentiment over recent months from a credit, monetary impulse, economic trajectory, regulation, inflation and even covid standpoint. This data suite will be very closely watched. We retain a positive view of China in the medium to long term, but remain cautious of the near-term growth moderation, and that's exacerbated by the current covid situation. We've already seen this play out in part, in reduced global economic growth forecasts, most notably in Europe this year, but also in emerging Asia. And the October data likely to confirm or even delay the significant expected European export-led rebound in 2022, as well as impacting sentiment more broadly.

And finally, back to the US. Following this week's higher than expected US inflation print for October - an eye popping 6.2% year on year - we expect inflation to continue to dominate the US narrative next week. We stated over recent weeks, if not months, that in our view, the US rate pricing was insufficiently hawkish relative to the macro data relative to pre-covid levels and even relative to its peers, notably Europe and Australia, in developed markets. Now there's been some movement in this regard, but for the US, this has further to go, implying continued upside potential is likely for the dollar. It's even possible that the White House reaches a decision on the next Fed chair, even if we've teed this up for expectations over recent weeks now. And as we've suggested before, a nod for Powell may well trigger a further hawkish pivot from the Fed top table. So, with some additional murmurs of geopolitical tension also emerging, next week may well be between reflection and anticipation. But there's certainly a lot to focus on.

Matt Jones

Thank you once again, Neil, for joining us and outlining your thoughts on the week ahead. We look forward to catching up with you again next week.

Neil Staines

It's been a pleasure. Thanks, Matt.

Matt Jones

Thank you for joining us for "The Long and Short of the Week Ahead". Further insights are available on our website eurizonsljcapital.com/insights. We look forward to you joining us again next week for more insights into macro-economic events and "The Long and Short of the Week Ahead".

Disclosure

None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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