In this episode:
- United Kingdom: Resilient Data, Rising Headwinds
- Global Macro: Data Deluge and Diverging Policy Paths
- United States: Fiscal Drift Amid Geopolitical Noise
United Kingdom: Resilient Data, Rising Headwinds
- Q1 GDP surprised on the upside at +0.7 % q/q, driven by a 5.9 % surge in business investment despite lingering trade uncertainty.
- Looming national-insurance and minimum-wage hikes, plus upcoming water and local-tax increases, are set to weigh on employers and consumers and could hasten Bank of England easing in H2.
- Key April releases, CPI (Wed) and consumer-confidence and retail-sales data (Fri), will test the durability of recent economic resilience.
Global Macro: Data Deluge and Diverging Policy Paths
- China’s April activity pack will reveal tariff fallout, while the RBA is still expected to cut 25 bp to 3.85 % despite robust jobs data.
- ECB minutes and global flash PMIs on Thursday should indicate whether euro-area policymakers turn more cautious as rates near neutral amid trade volatility.
- Japan’s April CPI could keep the rate-hike debate alive, underscoring widening policy divergence across developed markets.
United States: Fiscal Drift Amid Geopolitical Noise
- A heavy line-up of Fed speakers will be the main policy signal in an otherwise quiet data week.
- High trade-tariff volatility and a more expansionary-than-expected fiscal trajectory are fuelling uncertainty around CapEx and employment.
- Hard data have held up so far, but sliding confidence and forward expectations mean growth could fade quickly if fiscal concerns intensify.
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 busy couple of weeks for the UK on the trade and global relations front, it's another week of significant macro data. So how are we looking at the UK next week and beyond?
Neil Staines
Yeah, thanks very much, Matt. It has been a big couple of weeks for the UK. The UK-US trade deal, the UK-India trade deal.
And of course, we are now heading into the UK-EU Summit, the first of what will be annual bilateral summits focused on partnerships in the economy and security. It will certainly be interesting to gauge the level of economic commitments, given the ongoing trade deal negotiations with the US. Some agreements, or discussions, as you will, on fishing rights and youth mobility are certainly expected.
But beyond that, it's not really that clear. Certainly, Starmer will be hoping for a more positive reaction from Europe than he received from the Albanian Prime Minister today regarding the prospect of return hubs. Nonetheless, on the domestic economic front, the news has been better this week, with employment data showing wages holding up better than expected in March. The unemployment rate ticked up slightly, but as anticipated. On the GDP front, GDP for Q1 also exceeded expectations, rising 0.7% quarter on quarter, with a significant boost from business investment, which increased by 5.9% in the quarter. That’s much more than expected.
Despite this, and the more hawkish interpretation of the latest Bank of England cut, as we discussed last week, we still hold a more negative view of the UK into the second half of this year.
We are seeing national insurance hikes and minimum wage increases, and certainly, these changes will impact employers going forward. In addition to that, we expect water and local tax hikes, which are likely to affect consumers. With still higher rates, high debt, and likely even higher taxes in the autumn, we expect slower growth and faster Bank of England cuts through the second half of this year.
Next week, we will receive the CPI print on Wednesday, covering April, and consumer confidence and retail sales data, both for April, on Friday. So, it continues to be a big data-focused week for the UK.
Matt Jones
And how about more globally? What are we watching out for from the global macro economy next week?
Neil Staines
Yeah, absolutely. It's a busy week for global data next week, alongside a number of central bank speakers. On Monday, we get the China suite of data for April: retail sales, industrial production, fixed asset investment, and the unemployment rate.
This will be closely watched for the impact of tariffs and trade, especially following the post-Liberation Day escalation.
On Tuesday, we have the Reserve Bank of Australia. Higher-than-expected employment data this week is encouraging, but it’s likely not enough to prevent an RBA rate cut next week. The expectation is a 25 basis point reduction, bringing the rate down to 3.85%.
On Thursday, we receive the ECB minutes from the April policy meeting, where the deposit rate was cut by 25 basis points to 2.25%. We’ll be watching closely for signs of caution as we approach the neutral rate, a possibility suggested this week by the influential Governing Council member Isabel Schnabel. Alternatively, there may be continued broad pressure to ease rates further into, and perhaps even beyond, that neutral level.
Thursday also brings global flash PMI data, which will be a significant barometer of global sentiment given the current developments on the trade and tariff front.
Then, on Friday, we receive CPI data from Japan for April. A higher print there will certainly sustain the debate over the prospect of rate hikes in Japan, which contrasts with the direction of travel for the rest of the developed markets.
Matt Jones
And of course, the US will continue to be a big focus. A quiet week from an economic data perspective, but likely another very noisy week on the geopolitical front.
Neil Staines
Yeah, absolutely. A significant number of Fed speakers next week will provide an interesting gauge for any consistent themes or insights.
However, as you mentioned, the big focus next week is likely to be on the global geopolitical front and, indeed, the domestic political front. Domestically, the most consequential issues for markets are likely to be the tax bill and the fiscal position. We discussed this issue further in this week's blog, but the current dynamic of very high trade and tariff volatility leads to significant economic uncertainty, particularly around capital expenditure (CapEx) and employment.
Adding to this, there are considerable concerns that the current fiscal trajectory is much more expansionary than expected, presenting a number of key focus points for the US next week. So far, hard data in the US has held up well despite the deterioration in confidence and forward expectations data. However, that could change very quickly.
For us, the fiscal debate remains the dominant issue, and the lack of fiscal conservatism from the Trump administration is very disappointing. As you pointed out, Matthew, there isn't much data scheduled for next week, but the US warrants close attention on all fronts.
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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