In this week's Podcast
- Volatile Financial Markets
- Upcoming U.S. Economic Indicators
- Global Economic Outlook
- UK Economic Spotlight
Volatile Financial Markets
- The U.S. labor market's weakening is a growing concern for economic stability.
- Japan's policy shift could have far-reaching implications for global financial markets.
- Despite the Fed's reassurances, market volatility is likely to persist in the near term.
Upcoming U.S. Economic Indicators
- CPI and retail sales data will be pivotal in shaping the near-term inflation outlook.
- The market's focus remains on disinflation and moderated growth, which could favor risk assets.
- The Fed's upcoming communications will be closely watched for signs of future policy directions.
Global Economic Outlook
- Japan's economic data will be closely scrutinized for indications of future monetary policy changes.
- The Eurozone's economic performance will play a significant role in shaping ECB rate expectations.
- China's financial data will be crucial for assessing global economic health and stability.
UK Economic Spotlight
- The UK's economic data this week will be pivotal in shaping future monetary policy decisions.
- Despite upward GDP revisions, underlying economic growth remains fragile.
- Retail sales figures will be critical in assessing the resilience of UK consumer spending.
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
After a very volatile week in financial markets last week, with, a huge emphasis on the US and the global economic trajectory, how are we looking at sentiment and data next week?
Neil Staines
Yeah, absolutely. Thanks very much, Matt. It's as you say, it's been a very volatile week following on from what is essentially a Fed pivot a change in the balance of risks to both sides of the Fed's mandate. And that's particularly important given where we are in both inflation and the unemployment rate, the recent tick up in that unemployment rate and a disappointing payroll release on Friday, followed by a weaker manufacturing data. That all happened concurrent with a rate hike and a QE reduction in Japan, and the result was a rapid extrapolation of negative economic sentiment and recession fears in the US, and global economies that drove risk reduction and position unwinding. And at times this became pretty self propagating. Now, when we got to the services ISM data at the start of this week, we saw a slight recovery in risk sentiment as the Services ISM showed a little bit of a rebound or stability in the growth backdrop and slightly stronger claims this week had the same effect.
Fed rhetoric also aimed to balance the narrative to a more stable economic backdrop and not to overestimate the implications of one data point. This has certainly calmed the situation and markets are a little less panicky at the back end of this week. However, we have undoubtedly shifted to a higher baseline volatility regime, and the intensity of the data focus will definitely remain into next week.
Now in the US we get the CPI print and retail sales. And a number of forward looking survey prints next week and some Fed speakers to add into the mix. Now, as we discussed in this week's blog, we retain a more constructive macro view for risk assets going forward, as disinflation and growth moderation continue to be the dominant themes likely continuing to weigh on yields. And we see that in the absence of a recession as being positive for equities and risk assets and negative for the dollar. Anyway, you look at it though, a big week for volatility and a big week for the US.
Matt Jones
Course, it was not just the US that saw significant volatility last week. What are we looking for from the global economy next week?
Neil Staines
Absolutely. As [00:03:00] you say we've seen huge volatility globally. And as imminent recession fears fade we returned to the relative economic performance dynamics that are usually the case in global markets.
Next week, we see a number of data prints. First up Japanese Q2 GDP, and this will be closely scrutinized in the context of the recent Bank of Japan pivot and the huge equity and currency volatility we've seen of late. So it's important to see growth holding up, alongside prices and wages for rate hike expectations in Japan, in Germany, the ZEW would be an important focus.
Factory orders bounced strongly in June and we'll be looking to see if that's part of a broader rebound. Expectations are, however, for a slight pullback in the ZEW after a strong H1. In the Eurozone, we get Q2 GDP on Wednesday. And we're expecting number to come in around 0. 3. And there's going to be great sensitivity to that absolute level of growth across the Eurozone for rate cut expectations from the ECB.
And in China we get aggregate financing data and we're looking for signs to see whether demand is stabilizing in China after a long period of decline and further services support measures coming from the authorities this week.bal data and a big focus on global financial markets.
Matt Jones
And what about the UK? It's been a quiet week since the Bank of England rate cut on the 1st of August. But the UK is back in the data spotlight next week. What are we looking for?
Neil Staines
Yeah, quite right, Matt. We see there's a huge amount of UK data next week and it's going to be a big focus. We get the employment report on Tuesday, CPI on Wednesday, GDP on Thursday and retail sales on Friday. So all of those important in the formulation of positioning and risk appetite in the UK next week. Expectations are for a tick up in both the unemployment rate and the CPI rate, on base effects there. The bank of England have revised up its expectations for GDP for the rest of 2024. And so a higher bar for growth expectations there. Retail sales are expected to rebound after a very weak June. And overall we still continue to see the UK underlying growth is slightly weaker than the headline data will suggest.
And with the Bank of England inflation projections below target at the forecast horizons we expect the Bank of England to cut further in 2024 and beyond. We expect a maintained higher baseline level of volatility next week overall, and an acute focus on the data.
So no rest for the summer holidays just yet.
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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