In this episode:
- Global Central Bank Dynamics
- Data Watch: The Week Ahead
- Macro Focal Points
Global Central Bank Dynamics
- Jackson Hole remains a key signal for policy direction; last year it preceded the US rate-cutting cycle.
- This year, the Fed faces conflicting pressures: slowing labor/consumer trends versus tariff-driven inflation.
- Beyond Powell, Bailey, Lagarde, and Ueda may provide more meaningful surprises—particularly from Japan, where rate hikes could resume.
Data Watch: The Week Ahead
- RBA minutes may reveal the pace of easing after a reluctant rate cut, with weak productivity the central issue.
- German data (IFO, consumer confidence, unemployment, CPI) will be scrutinised amid labor market weakness, though fiscal stimulus tempers policy urgency.
- Japan (unemployment, retail sales) and US PCE will test tariff pass-through, while EM data points (Polish unemployment, Mexican trade, Czech/Indian GDP) round out the week.
Macro Focal Points
- In the UK, fiscal deterioration and the budget outlook dominate the Q4 growth and policy narrative.
- In the US, unemployment rate movements are the most policy-sensitive factor—current levels near the 4.3–4.5% threshold signal heightened risk.
- Slowing wage growth and fading labor market catch-up raise concerns for demand, keeping global attention fixed on upcoming US payrolls and data revisions.
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 another complex week for global markets, culminating of course in the Jackson Hole speech from Fed Chair Powell, which will happen after this recording, how are we thinking about the current global central bank dynamics at the moment?
Neil Staines
Yeah, that's a great question, Matt. You know, the gathering of the world's central bankers in Jackson Hole, Wyoming, is often a strong steer on a monetary policy pivot or a continued trajectory. Last year it signaled the start of the US rate-cutting cycle, preempting the 50 basis point cut in September.
This time out, against an uncomfortable conflict between a slowing labor market or slowing consumer, and the prospect of higher inflation pass-through from tariffs, things are a little less clear. In terms of the steer from central bankers, perhaps what may be more interesting over the three-day symposium is the narrative from other central banks outside the US.
While markets wait for Powell on Friday afternoon, we are perhaps more focused on Saturday afternoon’s panel with Bailey, Lagarde, and Ueda. Regular listeners will know our views on the Bank of England—that while at the August Bank of England meeting there was no discussion of the impending fiscal tightening and its impact on monetary policy, perhaps it may be more fitting for Bailey to announce a dovish pivot this time out at Jackson Hole. Although the chances this early remain relatively unlikely.
Lagarde is likely to be more passive at the current juncture. German growth is perhaps more troubling at the moment, but positive real wage growth, an impending fiscal stimulus, and a euro-wide defense spend increase are likely to calm that ECB reaction function, at least for now.
But perhaps Bank of Japan's Ueda is the most interesting. After a period of relative quiet, as trade negotiations between Japan and the US and also upper house elections meant that monetary policy took a back foot, now may be the time to discuss the next leg of the Bank of Japan rate-hiking cycle. That certainly would be the standout surprise for markets over the weekend. The global economy will be very keen to watch Powell, but Bailey and Ueda may have more definitively to say this time out.
Matt Jones
And what about on the data front? How will that monetary policy debate be shaped by data next week?
Neil Staines
Yeah, absolutely. After a quiet start to the week next week with the UK bank holiday on Monday, we get the RBA minutes on Tuesday. They may be relatively interesting after a reluctant 25 basis point cut at the start of August.
With weaker growth and inflation dynamics set against a tighter labor market, it's actually weak productivity that's driving the reluctance of the RBA to cut at the moment. So a complicated backdrop there, but certainly continued easing bias, and the RBA minutes may give us greater insight as to the pace of that cutting cycle.
In Germany, the recent big focus has been weakness in the labor market, particularly in industrial activity and even employment. That will bring heightened attention to next week's data. We get the IFO business survey on Monday, consumer confidence and retail sales on Wednesday, and unemployment and CPI on Friday.
German weakness is not yet policy relevant for the ECB, particularly given the fact that we have upcoming fiscal stimulus coming through the pipe, but the trend will now be very closely watched from the ECB and markets alike.
In Japan, Friday brings the unemployment rate and retail sales. Markets and policymakers will be keen to gauge any post-tariff impact on business and consumer confidence and reaction functions in the labor market, and of course in consumption.
And of course the US PCE on Friday will be a big focus, but we should know all the component parts from the relevant CPI and PPI prints. The result ultimately remains inconclusive as we wait to see the ultimate pass-through from tariffs down to the consumer level.
So overall, I would gauge it as a relatively quiet week for data, but some clear focal points, including also Polish unemployment on Tuesday, Mexican trade on Wednesday, and Czech and Indian GDP for Q2 on Friday, rounding off in the emerging market space.
Matt Jones
So relatively quiet on the data front, and of course we've got the long weekend in the UK. But if we zoom out a little, what are the key macro focal points ahead?
Neil Staines
Yeah, absolutely. Thanks, Matt. You know we discussed some of these points in this week's blog. In the UK the narrative will continue to focus on the fiscal deterioration and the likely sharp tightening ahead. Thus the budget is a clear focal point for Q4 growth and, as we have mentioned on a number of occasions, for monetary policy.
In the US it is, from our perspective, all about the labor market. Our internal quant work highlights the unemployment rate as the most policy-sensitive factor. That is, changes in the unemployment rate affect monetary policy, not the other way around, and the cleanest recessionary indicator in the US economy. Our analysis suggested that 4.3 to 4.5% is the key zone, just above current levels.
There are some signs of slowing wage growth and also some signs that the catch-up in some specific sectors in the US labor market are now reaching an end, meaning that labor demand may be more questioned going forward. That puts an increased focus on the employment data over coming weeks, with payroll on the 5th of September and also some scheduled back revisions to the data on the 8th of September. Over coming weeks, the eyes of the global economy remain on the US, and they remain on the US labor market.
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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