In this episode:
- Fed, BoE, and Global Policy Backdrop
- Global Economy – The Week Ahead
- US Outlook – Data, Policy, and Politics
Fed, BoE, and Global Policy Backdrop
- The Fed cut rates by 25bps, with projections showing stronger growth, resilient labour markets, and slower disinflation, a hawkish backdrop.
- Despite this, Fed “dots” shifted lower, highlighting a more dovish reaction function and underscoring uncertainty in the path ahead.
- The BoE remains behind the curve, while over 100 global cuts (including Norges Bank and Indonesia) mark a strong easing cycle, with Mexico likely next.
Global Economy – The Week Ahead
- Monetary policy decisions from the Riksbank and SNB are expected to hold, with Sweden constrained by inflation and Switzerland cautious on deflation risks.
- Mexico is likely to deliver a 25bps cut, though core inflation pressures make it a close call.
- Flash PMIs and EM retail sales will test post-tariff sentiment, while a busy slate of central bank speakers keeps policy debates centre stage.
US Outlook – Data, Policy, and Politics
- A Trump–Xi call will be closely watched, though expectations for tariff concessions remain low, underlining trade tensions.
- Fed speakers may clarify or reinforce the dovish shift in the dots, while Q2 GDP revisions and PCE inflation will refine the growth/inflation picture.
- With payrolls the following week, this is a transitional period where monetary policy remains the key market driver.
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
Now, central banks have been dominant this week with the Bank of England and, of course, the Fed. So how are we thinking about the evolution of monetary policy and markets at the current juncture?
Neil Staines
Yeah, thanks, Matt. That's a great question. You know, we expand upon our thoughts on the FOMC and the Bank of England further in this week's blog, but we do have many thoughts.
The Fed cut rates 25 basis points to a target range of four to four and a quarter. There was one dissent in the form of newly elected Steven Marin. In many respects, the updated economic projections and dots, however, highlight the complexity of the Fed’s job and the current macro backdrop.
Growth forecasts were revised higher. The unemployment rate projections show a more limited or shorter-lasting shock. Inflation is slower to return to target over the forecast horizon, all of which appear to be hawkish iterations.
However, at the same time, the dots, the member forecasts of the Fed rate path, were revised lower. Now, it could be argued that this conflict reflects a more dovish Fed reaction function, but it also highlights the risks to both faster and slower monetary policy support paths going forward.
Overall, we see the Fed as still supportive of a soft landing, implying dollar weakness, lower yields, and higher equity valuations, albeit with rising tail risks. In the UK, the Bank of England remains well behind the curve in our view, slowing growth and rising debt, not to mention a fast-approaching budget, which will accelerate the growth slowdown via higher taxation, all pointing to a rising need for lower yields in the UK.
The Bank of England instead remains focused on administered price risks and, in our view, transient inflation pressures. Now, we also saw rate cuts from the Norges Bank and the Bank of Indonesia this week, taking the number of global rate cuts above 100 in this current cycle. Mexico is likely to add further next week with a 25-basis-point cut to 7.5%. While the global monetary stimulus remains significant, the US, at 40% of the global rate space, and the UK are likely to add further to this.
Matt Jones
So against this supportive monetary policy backdrop, what else are we looking for in the global economy next week?
Neil Staines
Yeah, absolutely. It's a relatively quiet week next week from a data perspective, at least.
We do get monetary policy decisions, however, from the Riksbank, where we expect unchanged as above-target inflation prevents a more activist response to low underlying growth in Sweden at the current juncture. The Swiss National Bank is also expected to be unchanged after cutting rates to zero in June.
The step into negative interest rate policy does not come without risks, and we expect it is a step too far for now, despite the economy flirting with outright deflation. In Mexico, we expect a cut of 25 basis points to 7.5%, as we mentioned, but it is a close call with inflation moderating but core pressures remaining.
That’ll certainly be an interesting watch next week. And we get a raft of central bank speakers next week from the Bank of England and the Swiss National Bank, alongside the ECB, of course, keeping the monetary policy debate front and center. The data calendar is fairly light, but global Flash PMIs on Tuesday will be a focal point as a gauge of post-tariff sentiment globally. Retail sales across many emerging market countries, for similar reasons, will also add to the complexity and the interest of next week’s data releases.
Matt Jones
And how about more specifically in the US; what are the US focal points for next week?
Neil Staines
Well, absolutely. Into this week’s close, there is a phone call between Trump and China’s Xi, the tone of which will be very important to global sentiment. A number of other countries are also keen for further tariff dialogue.
Although it does feel like there is a high bar for concessions on tariffs from Donald Trump. The UK is a good example of this: following a lot of talk on the closeness of the historic and current UK-US relationship, that “special relationship”, Trump was asked if the US would reduce UK steel tariffs, to which he responded, We could, but it makes us so much money, highlighting the difficulties there.
Now, next week, we get a raft of Fed speakers, and that’ll be very interesting to see if any wish to “own their dots,” so to speak, or indeed add to the monetary policy debate in the US. On the data front, we get the third revision for US Q2 GDP, and it’ll be interesting to note the consumption–CapEx mix in the contribution to GDP there.
And on the PCE front, we know some of the parts, but any movement around the expectation of 2.9% on the core will be very keenly watched. An interesting week, therefore, and much focus on monetary policy, but really it is a placeholder for the following week and the return of non-farm payrolls.
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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