of the week ahead

Heightened Geopolitical Risks and Market Volatility

Despite a relatively quiet week in terms of data, geopolitical risks have been on the rise, leading to increased market volatility. The focus on growth, inflation, and interest rates has driven market sentiment, with a notable divergence in views. This week saw markets starting to question the sustainability of growth trends and the impact of tight monetary policies.

Global Economic Outlook and Key Indicators

The IMF recently upgraded global growth forecasts, setting a positive tone for the global economy. Looking ahead, key indicators to watch include global PMIs, German IFO data, and consumer confidence reports from the UK and France. The Bank of Japan's actions will also be closely monitored following concerns about the yen's impact on the economy.

Focus on the US Market

The US remains at the center of the macroeconomic discussion, with a keen focus on growth, inflation, and monetary policy. Important data releases such as Q1 GDP and the US PCE inflation measure will provide insights into the economy's performance. Additionally, a series of notable earnings releases from major companies will contribute to market volatility.


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 it's been a relatively quiet week from a data perspective, but a very noisy week in geopolitics. How are we thinking about markets from this perspective?

Neil Staines

Yeah, that's a great question, Matt. We've certainly seen heightened geopolitical risks this week, but on top of that we've also seen volatility from earning season and as we referenced in this week's blog, we've certainly seen a continuation or a an extrapolation of the focus on growth. Now we talk about this relationship between inflation between interest rates and growth and how the market has recently extrapolated the likelihood of higher growth, higher inflation, and higher interest rates at the same time and how we disagree with that. Now for the first time, this week markets have shown signs of questioning that underlying growth. Some realization or a movement towards a realization that monetary policy perhaps is too tight. Growth is more fragile than we had anticipated. Indeed in this week's Beige Book the Fed referenced firm's ability to be able to pass on costs as having weakened significantly. So overall. Increased baseline volatility across the board and a heightened sensitivity to well owned position, especially those in the kind of carry risk and short duration spaces.

Matt Jones

Also in the headlines this week, the IMF upgraded global growth forecasts in their World Economic Outlook. What are we looking for next week that might corroborate, or otherwise, this more positive global outlook?

Neil Staines

Yeah. Again, great question, Matt. From a global perspective, we tend to mean outside of the U.S. and that's dominated by Europe and China.

Although in this instance we will group that as Europe and Asia. On Tuesday, we get global PMIs for April, there will be specific focus towards Germany and Europe and how the inference of any recovery in that global growth path, but specifically, for Germany will impact the rate cut path from the ECB. So that'll be very closely watched. In Asia it's more of a focus on the relative monetary policy trajectory and how growth plays through in terms of Asia's ability to be able to cut rates in the face of a Fed that seems more delayed at this current stage. On Wednesday, we get German IFO, a similar interpretation there. Then on Friday the data will switch towards the consumer with the consumer confidence data out of the UK and France. And let's not forget, we get the Bank of Japan on Friday. The bank of Japan is very interesting, particularly given the commentary that we received from Kanda at the G7 this week, suggesting that a week Yen is hurting the economy, and also caveating that with agreement from G7 perhaps a likely precursor for MOF intervention in the yen. We'll be watching that very closely next week.

Matt Jones

So that leaves the U.S. clearly the center of market focus from many perspectives. What are the key focal points for the U.S. next week?

Neil Staines

Yeah, certainly. The U.S. dominates a global macro debate. Growth and inflation in particular and how that leads through into monetary policy and how that monetary policy dictates the relative tightness in other countries.

Now we touch on this further in this week's blog. But as some important data in the U.S. next week, as we move into the Fed blackout period. We get U.S. Q1 GDP on Thursday and that's going to be very important. We generally know, that the U.S. has outperformed from a growth perspective in Q1, so mildly retrospective, but it will certainly be interesting to see the breakdown, and the big data of the week is likely the U.S. PCE being the Fed's preferred measure of inflation. It's been much better behaved than the CPI, but there has been some debate around expectations going into this March reading. Is it 2.8 or 2.7 markets we're erring for 2.7 before Powell and Jefferson from the Fed, both hinted that perhaps 2.8 was the likely outcome. So expectations have been shifted modestly higher, but it'll still be a closely watched, given the sensitivity of inflation to the current macro economic debate. And then finally in the equity space, we get some big earnings releases next week, Tesla on Tuesday, Meta and IBM on Wednesday, Microsoft, Alphabet, Intel and Snap among many others. They're going to be released next week. Should keep that higher level of baseline volatility.

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 week.


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