Transcript
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 we have a slightly slower week ahead for dominant global macroeconomic data releases. Is this going to be a chance perhaps to look outside the recent rather acute focus on the US?
Neil Staines
We've certainly had that acute focus, as you say, on the US. Economic and monetary policy trajectory. And whilst we do expect that to continue there is as you say, a chance this week to look outside of the U. S. Now, one area in particular that we're going to be focused on is Japan.
The Tuesday sees the release of Japanese CPI for January and that will focus the market's attention on the prospects for the removal of negative interest rate policy. Japan finally reaching monetary normalization. Whilst the rest of the world's policy has peaked and they're looking in the opposite direction.
Now, Bank of Japan Governor Ueda said this week that Japan is experiencing inflation. We see that as a dramatic turnaround from the past decade of the fight against deflation in Japan. Also arguing that the virtuous economic cycle is getting stronger. Now market emphasis is focused around the March meeting, that's March the 19th where we have three basis points of positive rates priced and the April, the 26th meeting where seven basis points are priced, for the date at which Japan announces the removal of this negative interest rate policy. So this week's CPI data is going to be a big focus in that regard and have significant implications for JGBs, for Japanese equities and also for the Yen. Elsewhere, we also see Australian CPI and the RBNZ are expected to leave rates unchanged.
Albeit maybe emphasizing the recent shift towards an easing bias continued growth and inflation moderation, the key to that topic which we discuss further in this week's blog in relation to the recent hawkish repricing in the U.S. rate curves.
Matt Jones
Now, we've seen some rather high profile equity moves in the U. S., not to mention any sort of individual names in particular, but also over the last couple of weeks, we've discussed the potential impact of China reopening after the new year period. Do we see perhaps the sentiment that we've seen in equity markets broadening out into global equities?
Neil Staines
Very good question, Matt. Yes, of course. The US and China are the most dominant factors, not just in the global economy, but also in the global equity space. Now, back from Spring Festival, the data suggests that travel and spending data has been very strong over the holiday period. There has been a cut in the five year LPR rate reduced by a record 25 basis points and specifically likely targeted at the mortgage market and the issues surrounding the property sector that remains in China. Data on house prices that came out this week showed that price declines have slowed. So a mild positive there an equity market sentiment in China has also started to tick up this year as the tech and AI dominant themes that we see in the U S are also mirrored. Now the CS 300 is back to levels, the low points that we've seen in 2020 and 2022, just to reaffirm the recent bearishness that we've seen in the equity market space. Next week we see manufacturing and services PMI for February. There'll be very closely watched, even if they may be a touch early to reflect on some of the positivity on the rebound from the Chinese New Year holidays, but markets will be very attentive to see if both in the U. S. and in China, recent gains in the equity space can be maintained.
Matt Jones
Now of course we can't forget about the us So what events in particular are you going to be keeping an eye on in the week ahead?
Neil Staines
That's right. The rest of the world in many respects at the moment. It is relatively second order in relation to what's going on in the US particularly in terms of the monetary policy trajectory, which is so important for the rest of the global economy.
Now, we'll obviously be very attentive to any further Fed speakers. And the continuing narrative of cautiously dovish Fed speak. We get the release of the the PCE inflation print. Now we shouldn't expect a significant surprise bearing in mind that we already have the CPI and PPI components on the month, and therefore it should be a relatively orderly extrapolation of those. But that'll be a focus nonetheless. Now, we also get U. S. ISM manufacturing now after the release of the global PMI data this week, which has highlighted some stabilization and even potentially rebound in the manufacturing space, the U. S. data will be watched very closely, even if it's a small part in comparison to the service sector of the U. S. economy which we expect in coming weeks. The big data ahead is going to be the nonfarm payrolls on the 8th. And the CPI print both for February on the 12th and those are gonna be very important, particularly in relation to the employment trajectory which is emerging as the most critical part of the reaction function to the Federal Reserve.
Matt Jones
Fantastic. Thank you, Neil. I look forward to catching up with you again next week.
Neil Staines
Thanks very much, Matt. It's been a pleasure.
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