A Huge Week for the US
The US has been the center of market activity with upcoming key events including the manufacturing ISM on Monday and the services ISM on Wednesday. The labor market is also in focus with JOLTS, ADP, and payroll data releasing. Market attention is shifting from inflation to growth, impacting Federal Reserve policy.
Global Political Landscape
Investors are watching key elections in South Africa, India, and Mexico. South Africa's elections results are expected over the weekend, India's final voting round is Saturday with results next week, and Mexico votes on Sunday.
Key Economic Data in Developed Markets
- Australian Inflation Data: High inflation and slowing consumption will be closely monitored.
- Swiss CPI Data: May's CPI will indicate the Swiss National Bank's rate cut trajectory.
- Chinese PMI Data: The second PMI print is crucial for understanding China's economic recovery.
- Bank of Canada Interest Rate Decision: A tight decision on a potential 25 basis point rate cut could bring volatility.
Key Economic Data in Developed Markets
The ECB meeting on Thursday is expected to cut rates by 25 basis points. Investors will focus on updated GDP and inflation projections and ECB President Christine Lagarde's press conference for future rate cut timings.
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 the US has been front and center of market focus this week across stocks, bonds, and politics, all hitting the headlines. How do we see that focus evolving into next week?
Neil Staines
Yeah, thanks, Matt, you could say it's been a huge week for focus on the US. We've had three consecutive tailed auctions, in the US, that's something that does certainly highlight the potential issues for supply in the fixed income markets or debt markets globally, actually going forward. We've had downward revisions to Q1 GDP specifically in consumption components and a beige book, which highlighted slower discretionary spending.
All of this is going to bring a more intense focus on the growth inflation trade-off into next week. We start off with the manufacturing ISM on Monday and the services ISM on Wednesday, and they're going to be a big focus. We got sub-50 reads on the April prints for ISM, but since then, markets rallied strongly on the big bounce in the services sector PMI or the equivalent index. However, we don't see a strong correlation there, so we'll be watching for ISM to agree or disagree with the bounce and the PMI print. And it's also jobs week in the US, so JOLTS, ADP, and then the big payroll print on Friday. In this week's blog, we discuss the market's focus on inflation, but also the fact that growth is likely the biggest asymmetric impact on Fed monetary policy reaction going forward. For example, July, at the moment, is priced at just three basis points of cuts, but I think that would change dramatically if we saw any weakness in the labour market. So, ultimately, it is another huge week for the US.
Matt Jones
And election focus is also right upon us in many parts of the world at the moment. What are we looking at from a global perspective next week?
Neil Staines
Yeah, thanks again, Matt. We've got the South African elections that took place on the 29th and we're expecting the results to come in sometime around late Saturday, early Sunday. India, Saturday sees the last round of voting, and the results out sometime next week and then Mexico goes to the polls on Sunday.
So politics are huge focus across the globe. On the economy front or on the economics front in developed markets, also some important data. Next week we get Australian inflation data for May, Australia has had a very complex growth and inflation backdrop with further clear signs of slowing consumption against stubbornly high inflation. In Switzerland, we get the CPI print from May and that's going to help gauge as to whether or not, and how fast the SNB backup, the right cut that they've already had so far. And the second China PMI print, which is very important for market focus on the China recovery and what that means for the rest of the global economy. In addition to that, we get the Bank of Canada, not much focused on, but ultimately it's a very tight decision this week, markets are very split with roughly two thirds expecting a rate cut of 25 basis points, but that's in itself not conclusive and will bring some volatility to Canada no doubt on that announcement. Now US monetary policy has been a huge central focus for markets of late and the dominant driver, but the events of next week highlight perhaps a more divergent stimulus, and the opportunity to look at things from a slightly different perspective.
Matt Jones
So, by my reckoning, that leaves us with Europe and, specifically, the ECB meeting on Thursday. What are we looking for from Frankfurt next week?
Neil Staines
Yeah. Thanks again. The Canadian vote is very split. The US decision is very sensitive to the data but the ECB ultimately should be quite straightforward. OIS is pricing in a market expectation of 98% for a 25 basis point cut this week, and the key focus is going to be in a couple of areas. Firstly, the updated economic projections, GDP and inflation have surprised a little bit to the top side in recent data and energy prices have also pushed higher. However, we don't see that as clearly making changes to the medium-term ECB projections, but we're watching those very closely. And secondly and an updated inference on the implied policy path from the ECB, is something we're going to be very closely watching in the press conference and whether or not Christine Lagarde gives any reference to the timing of the next proposed rate cut. The projections will be important and the press conference also a focus. So it's a big week overall for the US for the ECB, and for the global economy.
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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