In this episode:
- US Macro Data and Earnings: A Complex Reaction Function
- Global Outlook: Sentiment, Stimulus, and Monetary Shifts
- Geopolitics and Tariffs: The Deep Shift in Global Trade
US Macro Data and Earnings: A Complex Reaction Function
- Pre- and post-tariff lens: Markets may discount strong data as occurring before tariff impacts, while weaker data could shift the macro baseline lower.
- FOMC minutes vs Powell: The minutes may already be outdated due to this week’s tariff announcements—Powell’s testimony could carry more relevance.
- Earnings kick off under pressure: Major US banks begin Q1 earnings season amid heightened volatility and fragile sentiment.
Global Outlook: Sentiment, Stimulus, and Monetary Shifts
- European sentiment in focus: Post-fiscal stimulus sentiment in Germany and the Eurozone will be gauged through the Sentix expectations release.
- China’s inflation read: CPI and PPI will test whether domestic demand is stabilizing despite elevated tariffs.
- Policy recalibration: Markets will watch RBNZ’s likely rate cut and ECB rhetoric for signs of evolving global monetary policy reaction functions.
Geopolitics and Tariffs: The Deep Shift in Global Trade
- Growth vs inflation tension: Markets are reassessing global growth and inflation expectations amid reciprocal trade measures.
- US exceptionalism in question: Rising dollar hedging and reduced US equity exposure reflect a broader asset allocation rethink.
- Tariff watch to drive volatility: Market focus turns to trade negotiations, retaliations, and confrontations as volatility likely persists.
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 data calendar continues thick and fast. What are we looking out for in the US data next week and how are we interpreting the data against what is a very complex macro backdrop?
Neil Staines
Yeah, absolutely. Thanks Matt. It is a very complex macro backdrop indeed this week exacerbated by the tariff announcements.
I'm sure we'll come back to that in more detail a little bit later. But as global investors review asset allocation and risk exposures to an involving landscape we've certainly seen elevated volatility. Now on the data front, next week, on Tuesday, we get the NFIB Small Business Optimism Index has been one of the key indicators of the success of the Trump policies, and that's something that's certainly gonna be watched from markets. And I imagine the administration alike.
On Wednesday we get the FOMC minutes. Now we may find that the FOMC minutes, given the extent of the announcements that we've seen this week on tariffs are a little bit outdated and indeed Powell's testimony into the close this week is likely to be a little bit more of a focus. We also get US CPI and PPI next Thursday and Friday, and Michigan sentiment also on Friday. The focus there being on the inflation expectations component of that. However, against the complex macro backdrop, we would expect a notable bias in the reaction function to the data as stronger data is discounted as pre tariff impact and weaker data gives a lower benchmark or a lower starting point for the macro evolution.
Now, in addition to the data, next week also sees the start of Q1 earning season with JP Morgan, Wells Fargo, BlackRock, and Morgan Stanley firing the starting pistol on Friday afternoon. A tough backdrop for earnings with sentiments so stressed. But equities and the data will remain a huge focal point next week.
Matt Jones
And how about more globally? How does the global data calendar fit into the market dynamic at the moment?
Neil Staines
Yeah, absolutely. Matt. It's a relatively quiet week for Global Data next week, however, we do get some notable announcements.
On Monday we get German trade balance for February and Eurozone Sentix expectations for April. That April print , they're gonna be a big focus as it comes post the European and German fiscal boost.
So certainly important to see how that's impacted sentiment there. On Tuesday we get Australian consumer confidence. Again. Another focus on global sentiment. On Wednesday, the RBNZ are expected to cut 25 to support a continued weak growth backdrop in New Zealand. So monetary policy is back in focus. On Thursday, we get China's CPI and PPI and that's gonna be a big focus to see how domestic demand stabilization is continuing despite the very high imposition of tariff rates on China this week.
And then on Friday, we get UK GDP and that's for February. And Rachel Reeves will certainly be watching that very closely, after we discussed very heavily last week the narrowing, fiscal headroom in the UK. We also get a number of speakers next week. And that's gonna be very important to judge the change or the renewed emphasis as a function of the data evolution, but also of the tariff announcements that we've seen this week.
In Europe towards the end of March, we certainly saw more balanced rhetoric in terms of the realistic discussion around a pause at the April meeting. It'll be interesting to see if this, recent tariff announcements has changed that sentiment. And certainly in addition to that, the equity selloff.
So it'll be a big focus next week on that changed monetary policy reaction function from the ECB and beyond. It's certainly gonna be an interesting week from the global economy and in particular from the perspective of monetary policy conversations.
Matt Jones
Now, while data may hold some interest for markets next week, it's clear that geopolitics and in particular Trump tariffs will dominate sentiment next week. So how are we thinking about this?
Neil Staines
Yeah, thanks very much Matt. And we discussed this topic in greater detail in this week's blog. But it's clear that the regime change in the global trade dynamic is a key focal point for markets at the current juncture.
We have some thoughts, firstly, that markets are trying to gauge the negative growth and positive inflation adjustments to both the US and the rest of the world of reciprocal trading arrangements. Now against this, the questioning of US exceptionalism that we've discussed further over recent weeks has driven US equity exposure, rebalancing.
We may historically review this, the starting point of this as the deep seek moment. Now together this has seen a global asset allocators questioning both the concentration of US asset holdings and the historical performance enhancing unhedged dollar allocation, alongside this against the current backdrop ultimately we've seen equity unwinds and an. Increasing dollar hedge ratios or a declining dollar, an unusual departure from the dollar smile framework. Now, next week, markets will be very closely watching negotiations, retaliations and confrontations.
And all of those are gonna lead to heightened geopolitical and market volatility. And that's likely for us to be the dominant focus next week and likely beyond.
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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