of the week ahead

The Long & Short of the Week Ahead is a weekly macroeconomic podcast.

In his weekly episode, Neil Staines, Senior Portfolio Manager, outlines his thoughts on the Long & Short of the Week Ahead. Podcast recorded 24th June 2022.

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, 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 looking into the week ahead, I fear next week could be a bit of a P.I.G., but only as much as we're focused on Policies, Inflation and Growth. Perhaps you could outline your thoughts.

Neil Staines

Absolutely, yeah, thanks, Matt. You know, as we come to the end of the month, and the end of Q2 and H1, there are still some very interesting and complicated dynamics in the global macroeconomic and global market world. Indeed, in June itself, we've seen some sharp moves driven by inflation, the US CPI print, perhaps most notably in the Fed pivot, and reacceleration of hawkishness from the Fed. On the growth front, you know, a shift in market pricing and the probability of recession, that's something that has been front and center; and the monetary policy front across DM and em, right from one end from surprise action to the other end of surprise inaction. Now next week, we have events and data that focus on all three of these areas for global financial markets.

Firstly, in the US, the emphasis remains on inflation and perhaps more significantly, recently, after regaining, or for now at least, control of the inflation narrative from a financial market perspective, the policy focuses on inflation expectations, and second round effects there in. Sentiment in this regard is key to the Fed path and next Friday's PCE release from May will be key to that. This will be a key focus for markets in gauging the Fed reaction function and the recent stability that we've seen in treasuries, and potentially a more stable backdrop for risk assets, as the Fed targets a relatively narrow landing strip for a soft landing.

On the growth side, focus turned back towards Europe and more specifically Germany this week as a faster than expected slowdown in the PMI activity data for June, and a surprise move to phase two of Germany's gas emergency plan highlight the difficulties facing Germany's dominant manufacturing sector and potentially the consumer through the second half of this year. Now we'll get inflation data for Europe with a flash estimate for June, where German figures will be a closely watched subset and retail sales data for March and the employment report for June will be keenly watched German data. Now just as the ECB have stepped up their hawkish response to changes in the inflation dynamic, faltering growth in its dominant member state, certainly from a credit perspective adds to the complexity here. One factor that may be relevant for both US risk assets sentiment and European especially German growth sentiment is China. And the recent positive or supportive pivot in both in terms of monetary policy and regulatory control are significant, so important to continue to monitor developments there.

Then finally back to Japan, this week has seen a nine year high in services activity and a second consecutive above target core inflation print. Swaps as opposed to JG B's at the 10 year, yield curve control target points have widened further, and the yen has weakened despite some pressure coming off treasuries and oil markets in recent sessions. And now monetary policy will continue to be a key focus for markets as the Bank of Japan remain an outlier in terms of its reaction function. And next week, we get the quarterly Tankan survey where a more upbeat assessment may pile further pressure on the Bank of Japan policy in flexibility. I suspect the Yen will play a big role in FX, volatility at least, and broader dollar sentiment in Q3 with the Bank of Japan policy at the very heart of it. So then inflation growth and policy very much at the heart of the current financial market debate and front and center and the data next week.

Matt Jones

Thank you, Neil. Absolutely a gem in the sporting calendar, perhaps best not to think about the price of those strawberries. Well, thank you once again for outlining your thoughts on the week ahead. And we look forward to catching up with you again next week.

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.

ESLJ-240622-P2

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