In this episode:
- UK: Inflation Surprises & a Sliding Economy
- Global: From Japan’s Politics to the ECB’s Pause
- US: Light Data, Heavy Risk Focus
UK: Inflation Surprises & a Sliding Economy
- Headline, core, and services CPI all exceeded expectations, still reflecting wage and policy effects, yet potentially masking weakening domestic demand.
- The unemployment rate rose to 4.7%, consistent with a dovish outlook and approaching COVID-era highs.
- Consumer data next week, CBI, GfK sentiment, and retail sales, will offer fresh insights into household confidence as the UK heads into tighter fiscal policy.
Global: From Japan’s Politics to the ECB’s Pause
- Japan’s upper house elections could shake the long-dominant LDP, increasing fiscal stimulus promises and raising pressure on JGB yields.
- The ECB is widely expected to pause after 7 consecutive cuts, with markets still pricing in a further cut by year-end.
- Australian data may render RBA minutes outdated, but the broader global narrative is one of monetary policy divergence and cautious optimism.
US: Light Data, Heavy Risk Focus
- With only jobless claims and durable goods on the calendar, market attention shifts to the much fuller data slate in the final week of July.
- Tariff escalation looms as the August 1 deadline approaches, especially in EU–US trade relations.
- Earnings season ramps up with tech and industrial heavyweights, adding to the mix of sentiment drivers and potential volatility ahead.
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, after a headline-grabbing week for UK politics and, of course, the all-important inflation and employment data, how are we thinking about the UK, and what are we looking out for next week?
Neil Staines
Yeah, absolutely. Thanks, Matt. With continued negative headlines around the UK's fiscal trajectory, this week's macro data has shone a further spotlight on the Bank of England and the likely path of UK rates through the second half of 2025.
This week's CPI data saw headline, core, and services inflation all above expectations for June, likely still a function of changes to the energy price cap, minimum wages, and employer national insurance contributions, and, in our view, representative of base effects masking declining aggregate domestic demand underneath. The unemployment report was more consistent with our more dovish view of the UK economy, with the unemployment rate ticking up to 4.7%, having now risen from 3.5% in 2022, and now not too far off the COVID peak of 5.3%.
Next week brings CBI and GfK consumer confidence data for July, and another important gauge of consumer sentiment in retail sales, just shy of the “Oasis effect” that we expect throughout the rest of the summer. Sadly, from our perspective, the UK economy is starting to slide away. Some might say a tighter fiscal policy in the autumn triggering looser monetary policy in the second half may now be all part of the master plan.
Matt Jones
And what about more globally? How are we thinking about global monetary and fiscal policy, and what events next week shape that view?
Neil Staines
Yeah, good question, Matt. It's a huge week, or weekend, for Japan, with upper house elections and at least 125 out of the 248 seats in play, which threatens to upend the governing bloc. The LDP, having been in power for the best part of 70 years, faces rising dissent and, by extension, a rising opposition threat.
Long-end bond yields in Japan have been the recent pressure valve, as political discontent drives promises of fiscal support from across the political spectrum. Ultimately, this likely leads to higher Japanese interest rates, but not likely until the politics and trade deal with the US reach something of a conclusion.
Elsewhere, the RBA minutes may be a little out of date after the weaker employment report this week, but they will be closely watched nonetheless, after the RBA left policy on hold at their last meeting.
But the big global focus is likely to be on the ECB. After eight rate cuts, seven of them consecutively, the July meeting likely brings a pause, consistent with what we've seen from ECB speaker narratives of late. And with incoming data broadly consistent with June projections, i.e., of a more stable or resilient growth backdrop against further disinflation, markets will still look for one more cut this year, or at least the risk premium demands one more cut in the curve. Even with no updated projections from the ECB, it must still be an acute focus for markets next week.
Matt Jones
Now, perhaps we should look at the US next. How are you thinking about data, tariffs, earnings, and sentiment into next week?
Neil Staines
Yeah, absolutely. Thanks, Matt. As you say, there's a lot to focus on still in the US. Although the data calendar is very light next week, with just claims and durable goods data standing out.
Noting, of course, that the last week of July contains consumer confidence, Q2 advance GDP, PCE, ECI, ISM manufacturing, JOLTS, ADP, and, of course, non-farm payrolls. Data and the pricing of rate curves and risk assets will continue to remain front and center, even if it's a little light into next week.
This is a topic we discuss a little further in this week's blog, in particular in relation to that risk pricing. Now, as we edge closer to the August 1st tariff deadline date, however, we expect trade negotiations, and, in the case of the EU, perhaps even the trading of threats, to escalate in intensity over the next two weeks.
So, plenty to watch out for there. And, of course, we are in earnings season. Next week brings Texas Instruments, IBM, Google, Tesla, and Intel, and the following week, Microsoft, Meta, Apple, Qualcomm, and Amazon. So, there certainly is no rest for the wicked over the coming weeks.
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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