In this episode:
- UK: Fiscal Policy and Monetary Outlook
- Europe: Fiscal Expansion and ECB Implications
- Global Outlook: Data Watch and Trade Risks
UK: Fiscal Policy and Monetary Outlook
- The Spring Statement offered minimal fiscal adjustments, but potentially unpopular ones even within the governing party.
- Fiscal expansion from last October is still likely to feel like a tightening at the household level.
- Eurizon SLJ expects the Bank of England to cut rates faster than current market pricing through 2025, amid a weaker economic trajectory.
Europe: Fiscal Expansion and ECB Implications
- European fiscal expansion likely reduces the need for an aggressively dovish ECB, making an April cut a closer call.
- Watch for Eurozone CPI (Tuesday) and ECB minutes (Wednesday) to provide further clarity on the inflation and rate path.
- Rising defense spending may not support growth in some Eurozone economies — spreads remain a key risk indicator.
Global Outlook: Data Watch and Trade Risks
- Japan’s inflation outlook remains key as the BoJ eyes further hikes; retail sales and industrial production in focus Monday.
- China’s PMIs will test sentiment around consumer confidence and the transmission of support measures into private demand.
- In the US, a major data week (JOLTS, ISM, ADP, trade, payrolls) is overshadowed by Wednesday’s expected reciprocal tariff announcement, with global trade and GDP implications.
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
Now, the UK has been in the headlines this week with European defense negotiations, auto tariff response considerations, and of course the spring statement. I'm not sure where you want to start there, Neil, but over to you.
Neil Staines
Thanks very much. Yeah, absolutely. It's been a very big week for the UK. Now we discussed the budget the spring statement in more detail in this week's blog.
But essentially it was all but a minor tweak albeit potentially politically unpopular even within the party. Now that leaves a very narrow path to maintaining the fiscal rules and we do expect to hear more from the chancellor in the autumn potentially with further tax rises more broadly.
Our focus this week will be on the link between the fiscal and monetary responses globally. In developed markets, we see US fiscal consolidation that certainly, counter to consensus expectations of unchecked further fiscal expansion, combined with continued disinflation and growth moderation. And ultimately that leads us to a path of lower rates, certainly greater than the market currently expects over the next couple of years. In Europe, recent significant fiscal expansion likely leads to a less activist ECB. It may be too early but even potentially April is now a closer call next week. We also get the ECB minutes on Wednesday, so we'll get a further insight into their thinking there. And the all important Eurozone CPI print.
For March that also comes out next week. Now, intra-Eurozone is not clear to us that the increase in defense spending is a positive for the debt and growth dynamic, and spreads are very much worth watching in that regard. However, in the UK, at the time of the October budget, we stated that we thought that the fiscal expansion that was created would likely feel like a tightening at the consumer level. We still think that, and that makes it a very complicated backdrop for the Bank of England.
Ultimately we see a weaker economic trajectory being dominant and therefore the Bank of England cutting rates at faster than the pace that the market is currently pricing through 2025. Next week we also hear from Christine Lagarde and Phillip Lane at the ECB and the Bank of England's, Megan Green.
So, there are plenty of parts to put together in that fiscal and monetary narrative.
Matt Jones
And how about more globally? We're expecting a lot of global economic data next week, so what are you going to have your eye on?
Neil Staines
Absolutely. Yeah. Thanks Matt. We get plenty of data next week across the board. On Monday outta Japan, we get industrial production and retail sales that will be very closely watched in terms of Japan's progression towards a sustainable level of inflation around the 2% level that frees up the Bank of Japan to hike rates further in the week we did have a summary of opinions from the March Bank of Japan meeting whereby members maintain the desire for further hikes in rates, if the economic outlook is met, but also highlighted risks and uncertainties in the global economic and geopolitical arena at the current juncture. In China, we get manufacturing and services PMIs next week. Markets are very keen still to gauge the trajectory of private demand and consumer confidence as China's measures to inject support work their way down into the real economy, and in Australia on Tuesday, we also get the RBA policy meeting expected, unchanged at 4.1% there. Inflation has been surprising to the downside recently. A general election has been announced for May the third.
And trade uncertainties and China demand weakness continue to weigh on the Aussie all skewing negative for Aussie rates, but unlikely we get action on Tuesday.
Matt Jones
And of course, April 2nd will be upon us very shortly. So I suspect that the US and tariff intentions will again be the dominant factor next week. What are you going to be looking out for though, specifically in the US?
Neil Staines
Yeah, absolutely. It's a huge week for US data and for policy. On the data front.
On Tuesday we get Jolts job openings. And US manufacturing, ISM net manufacturing sector was highlighted in the recent PMI data as being particularly weak. So we'll watch out for confirmation of that there. On Wednesday we get the ADP, the private sector precursor to payrolls. On Thursday we get the trade balance. And this week's advanced goods data suggested that there has in fact been a significant amount of front loading ahead of those proposed tariffs. So that's also something that's worth paying attention to. Also on Thursday we get ISM services. Now the PMI equivalent pointed to something more of a stronger rebound. So we'll be looking for corroboration or else there, and then on Friday. It's at all important payrolls.
Markets are looking for around about 120 with an unemployment rate ticking up perhaps to 4.2% and adding pressure to the FOMC. All very important. But the overarching focus as you allude to Matthew is gonna be for markets on Wednesday. It's the announcement of reciprocal tariffs from the US administration.
This has huge implications for global trade, global GDP, global CapEx and global economic sentiment. Finally, the week will be rounded off or calmed down, maybe by a keynote address from Fed Chair Powell on Friday afternoon. But however we look at it, it's a huge week for the global economy and a huge market focus on Wednesday.
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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