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 10th 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 we're back after our Jubilee hiatus. I don't know about you, but I'm not sure I could stand to stomach another cucumber sandwich. But we're back. And we have a nice spread of data this week from around the world. And I think the focus really is going to be on the evolution of the inflationary reaction function from central banks. So as you look into next week, what are you going to be focusing on?

Neil Staines

Yeah, absolutely. Thanks, Matt. As markets digest this week's ECB decision, formally ending its QE program and embarking on a normalization journey, as opposed to just a step as Lagarde was clear to point out, central banks and their respective reaction functions remain front and center next week. We outlined some further thoughts on the ECB in this week's blog. But the narrative was clear the decision unanimous. A series of rate hikes are in train to address the above target inflation throughout the forecast horizon. A reaction function understandable in light of the ECB singular mandate, that is specifically inflation, and the underlying market dynamic leads us to a very few clear focal points for next week. Next week brings the return of the Bank of England while it's not a quarterly inflation report month or a monetary policy report month in new money, and thus, no new forecasts or indeed press conference. The action of the Bank of England and the accompanying statement will be closely watched. Governor Bailey is expected to propose a 25 basis point rate hike at the meeting. And while ahead of the previous meeting, we highlighted the potential for a three way split, ie votes for unchanged, 25 and 50 basis points on the uncertainty of the growth and inflation trajectories, this time round, we're inclined to see more unity.

Firstly, the fiscal boost announcement by the Chancellor a couple of weeks ago to address the cost of living squeeze likely puts paid to the unchanged by us and some of the members. However, the persistent global supply uncertainties and broadening inflation pressures, meaning the 9% annual CPI print in April is unlikely to be the top, likely keep a hawkish tone to proceedings. At least in the near term that is and a 25 basis point hike to 150 (one and a half percent) in the UK thus seems likely.

Secondly, sentiment continues to be a key driver of markets in the near term, heightened sensitivity to more negative economic developments amid a more audible commentator recession narrative mean a continued acute focus on COVID cases in China, the war in Ukraine, and obviously, inflation are three dominant shocks, prominent in different global economic regions. Markets likely remain more defensive while we retain a more positive outlook in general, more so in some specific cases. Data evolution therefore and news headlines continue to be a key focus. And on that front, the suite of China data for May will be very closely watched least for signs of bottoming out and the reopening from the zero COVID lockdowns that we've seen. In the UK retail sales for May an employment and industrial production for April will be a key focus alongside Germans ZEW.

Then lastly the dominant focus for next week, given the importance of the market sentiment and global economic evolution on the central bank reaction functions is the fed. The FOMC is expected to raise rates by 50 basis points to a 1.25 to 1.5% target range. However, the dominant focus will continue to be around the fear of persistent or a more pernicious inflation, and thus, a more growth unfriendly fed reaction function. Focus therefore will not just be on the rate announcement and the accompanying statement or indeed the press conference, but also on the updated summary of economic projections from the Fed and the rate forecasts or dots. The ECB meeting this week, will retrospectively be viewed as a milestone, the announcement of an effective end to the negative interest rate policy within the Eurozone. But the Fed narrative likely continues to dominate global sentiment.

Matt Jones

Fantastic. Well, thank you once again for joining us, Neil and for outlining your thoughts on the week ahead. We look forward to catching up with you again next week. It's been a pleasure.

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-140422-P1

Subscribe to our insights

If you are interested in our content, please sign up below and we will deliver Eurizon SLJ insights right to your inbox.



    I consent to my data being collected and stored for the purposes of providing me information regarding my enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com

    Envelopes on a wood background

    Our Research

    Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.

    Aerial view of forest during  colourful autumn season.