In this episode:
- The UK: Fiscal Tension and a Slowing Economy
- Europe, the RBA, and Global PMIs
- The United States: Data Returns After Shutdown
The UK: Fiscal Tension and a Slowing Economy
- Markets reacted to potential fiscal tightening via lowered tax thresholds, though improved OBR growth projections may reduce the need for tax increases.
- UK macro data — including weaker GDP outcomes — highlights the challenge of balancing deteriorating public finances with a slowing economy.
- Market pricing implies a December rate cut is likely; Neil continues to see the economy on a weaker trajectory and expects a more dovish Bank of England ahead.
Europe, the RBA, and Global PMIs
- A dense ECB speaker calendar may offer hints about future board evolution, though policy is unlikely to shift meaningfully without a shock.
- RBA minutes are expected to reinforce a hawkish tone following strong employment data and Governor Bullock’s neutral-bias stance.
- Global flash PMIs, plus key EM releases from Poland, Chile, Colombia, Indonesia, and South Africa, will offer a broad gauge of global momentum and tariff impacts.
The United States: Data Returns After Shutdown
- September payrolls should arrive soon, but gaps in October CPI and unemployment data may persist due to unrecoverable shutdown disruption.
- Uncertainty around the December FOMC meeting remains high, with markets pricing a roughly 50% probability of a cut — matching Powell’s “not a foregone conclusion” tone.
- Nvidia earnings could significantly influence near-term equity sentiment, while cross-asset volatility remains, in Neil’s view, too cheap for the current backdrop.
Transcript (AI Generated)
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, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
So, the UK remains front and center in the developed market space at the moment, with a particular emphasis on the upcoming budget. So, how are we thinking about the UK next week?
Neil Staines
Yeah, thanks very much, Matt.
Certainly an important couple of weeks for the UK and for UK assets. Into the close of this week, we had an FT article that highlighted that there may be no income tax hikes in the upcoming budget, but instead the lowering of thresholds — so essentially the same thing via a different name.
Gilt yields spiked higher on the concerns over fiscal responsibility; however, then came the suggestion that increases in the OBR growth projections may give a smaller fiscal hole and therefore reduce the need for income tax hikes in the first place. Markets have calmed, but the emphasis remains nonetheless.
This toing and froing, with GDP expectations coming in below expectations for the September and Q3 prints this week, highlights the significant challenges in balancing deteriorating fiscal public finances and a slowing economy in the UK at the moment. Now, next week we get the CPI print for October on Wednesday and retail sales for October on Friday.
Both are interesting gauges of domestic demand and the current economic trajectory in the near term, and not in the out years of the OBR forecasts as we’re balancing in the gilt market at the moment. Markets are now pricing 20 basis points for December, or an 80% probability of a 25 basis point cut, but have only 50 basis points in total in by midyear.
Regular listeners will know our views on the UK well, but we continue to see a weaker current and future path for the UK economy. We’re more in the Allen Taylor camp on the dovish descent in the Bank of England. Bailey’s modest dovish shift at the November MPR is likely the start of a more dovish Bank of England.
But from our viewpoint, it is just the start.
Matt Jones
And what about more broadly? How are we thinking about Europe and beyond, and what are we watching out for next week?
Neil Staines
Yeah, absolutely. Thanks, Matt. Next week starts with a heavy ECB speaker calendar with Isabel Schnabel, Phillip Lane, and Louis Dedos, whose term is the first to expire relatively soon and therefore may be an indication of the ECB policy board evolution. In the near term, ECB policy is not going anywhere, however, without a significant shock.
On Tuesday we get the RBA minutes. Now, the unchanged policy decision in the early November meeting was seen as a hawkish iteration, with Governor Bullock highlighting a lack of bias. Many commentators have since then crossed out further rate cuts in their forecasts for the rest of this year and beyond.
This week’s stronger-than-expected employment data highlighted that hawkish iteration further. The minutes this week are expected to continue in this vein. On Friday, we get global flash PMI data for November, a key barometer of the evolution of the global economy and an important update on the impact of US tariffs on global, domestic, and external activity.
This may take on additional importance given the weaker risk appetite in recent sessions. More broadly in the EM space, we get core CPI from Poland, Q3 GDP from Chile and Colombia, and the Bank of Indonesia rate decision — likely to be unchanged there. After an encouraging budget from South Africa this week and ratification of the move to a lower-point reference for their inflation targets, we get CPI and the Saab decision next week; both will be very keenly watched in South Africa.
Matt Jones
Finally, and as usual, we’re going to end with the US, and I presume of greater importance next week as well with the return of the data. So what are we looking out for next week, and when?
Neil Staines
Absolutely. After the longest shutdown on record, the US government is now finally back open. And while we do not yet have an official data release calendar, we now expect data to start to emerge.
First up will likely be the September payroll numbers, which White House Economic Advisor Kevin Hassett described as “fully baked,” and therefore should come along relatively soon next week. There are some doubts, however, about the October CPI and unemployment rate prints. Potentially unrecoverable data may mean a gap in the data history that goes back around a hundred years. Clarity may not, however, return by the December FOMC meeting on the 10th, where markets are now pricing around a 50% probability of a rate cut at that meeting. Almost perfectly representing Powell’s “not a foregone conclusion” rhetoric from the November meeting, and while it may also represent the view that there is no risk-free path for policy, it is not a comfortable position for the Fed or for markets, representing the maximum uncertainty around the policy iteration. Next week’s Fed minutes release may add some clarity on the range of views, but is unlikely to clarify the likely intent of the board on the December 10th meeting.
Nvidia’s earnings release, also on Wednesday, will be a huge focus and has a very large potential to steady or dislodge already shaky near-term equity sentiment further. Plus ça change, as the French may say: progress but no clarity. Overall, we see vols being too cheap across asset classes, but nonetheless, it’s a very interesting week next week.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next time.
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