of the week ahead


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.

Yes, next week is likely to be a very interesting week, despite a relatively thin calendar from an economic release standpoint. We expect the events of the week to further highlight the dominant theme of divergence as growth, yield and even covid cases widen in favour of the US. And in FX, the dollar is likely to continue to benefit.

Next week is cut short, if you will, by the Thanksgiving holiday on Thursday, signalling the beginning of the end of the year. Perhaps it's one that many will be glad to see the back of, but certainly Thanksgiving itself gives us a chance to look forward into next year. And at least at the outset, we continue to see the financial markets driven by US equity and dollar outperformance as divergence peaks. Now, the traditional Black Friday sales that follow Thanksgiving will also be worthy of note. Recent high frequency data in the US suggests a re-acceleration of growth driven by revived consumer activity and labour gains, and post Q3 covid wave that now seems to be leading into greater positivity in the US. Earnings from Walmart, Home Depot and Macy's corroborate this view of positive demand, and holiday sales will be watched very closely for signs of consumer activity, but also for vendor prices as an inflation metric; factors that may be key to shaping the Fed reaction function and therefore the dollar, of course, into December and beyond.

On that note, and perhaps a kind of a segue way into the Fed minutes, I've mentioned it for a number of weeks now, but we may also get the pre-Thanksgiving announcement on the next Fed chair, something that one commentator this morning referred to as 'Biden's Game of Throne', which I thought was quite interesting. Now we do get the Fed minutes from the November FOMC. At the time of the meeting itself, it was clear that it was the singular goal of the Fed to communicate a taper commencement without any hiccups. And that meant that the press conference, or at the press conference, Powell did not comment, nor would he be drawn for comment, on the Fed's reaction function beyond the taper itself, namely a rate hike. The minutes, therefore, will be very closely watched for any spread of opinion on the taper pace or any rising concern of inflation from within the FOMC. It's important to note that the more acute global inflation pressures and the kind of stretched, if not dis-anchored, medium term inflation expectations appear triggered by the natural gas price surge in October. And thus for the US at least, it wouldn't have been a factor in the September Summary of Economic Projections - or the 'dots'. And on that basis, we expect the November employment report, the November CPI report and the December FOMC over coming weeks to contain notable upside risks to the dots, to rate expectations and indeed to the dollar.

And then lastly, on the flip side of the recent divergence story is the eurozone. Next week brings PMI data for November, as well as the German Ifo Business Climate Index also for November. The data will be an important gauge as to how the triple whammy, if you like, of energy price spikes impacting production costs and consumer demand supply constraints impacting factors of production in European manufacturing and more recently, the COVID surge that has seen Austria back in full lockdown and a number of other countries on the verge of joining them. So against this backdrop, we expect ECB members to maintain a dovish narrative pushing back on 2022 rate hikes, perhaps even beyond that, just as we move into December, where we expect the Fed narrative to pivot more hawkishly. Next week, and beyond, we continue to see divergence as the key theme in financial markets.

And another fascinating weekend in the world of sport. Formula One moves to Qatar; Lewis narrowed the gap to 14 points in Brazil last week with an incredible performance, and there are three races left. This really could go right to the wire. It's also the return of Premiership football after the international break: Leicester against Chelsea, Liverpool vs. Arsenal and, of course, Wolves against West Ham United, the pick of the fixtures over the weekend. But for me, it's really all about the international rugby. We've got Wales against Australia, France against New Zealand, which sound incredible matches, great line ups. But the highlight possibly England vs. South Africa and the self-named 'bomb squad'. Should be a fascinating state of affairs.

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".


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