In this week's Podcast: China, Europe, US, and global geopolitics, all in focus
- China: Impact of Stimulus and Regional Growth
- Europe: Fiscal and Monetary Policy Interplay
- US: Macroeconomic Outlook and Election Proximity
China: Impact of Stimulus and Regional Growth
- China’s liquidity measures and demand stimuli dominate market sentiment.
- Medium-term consumer confidence will have global economic implications.
- Regional effects may influence commodities, global equity sentiment, and currency markets.
Europe: Fiscal and Monetary Policy Interplay
- Europe is closely tied to China’s growth, with potential benefits if China's recovery accelerates.
- Data from Germany and the Eurozone will act as benchmarks for Europe’s growth trajectory.
- European fiscal policy balances tightening debt control with looser monetary settings to boost growth.
US: Macroeconomic Outlook and Election Proximity
- US economic conditions continue to suggest disinflation and growth moderation, signaling a potential soft landing.
- The FOMC minutes and CPI data will clarify the direction of US inflation and labor market normalization.
- The upcoming US election adds further complexity to economic and market outlooks.
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 Chinese stimulus plans continue to dominate sentiment in the Asian equity space. How do we see this evolving next week? And what in particular are we looking out for?
Neil Staines
Great question, Matt. The wide package of China liquidity and proposed demand stimuli have been the dominant focus this week. With knock-on implications for regional growth expectations, and even for commodity prices. Now we touch on that in this week's blog. China sentiment and equity dynamics will continue to have significant impact next week. Onshore markets remain closed until Tuesday of next week, and reports of a surge in domestic demand, with brokers having canceled holidays to process new accounts applications, are likely to keep markets bid at the start of next week. Medium term sentiment, however has bigger implications for consumer confidence and domestic and global economies alike. The events in China may be too late to alter the dynamic in Australia, as far as the RBA minutes are concerned, where Australia faces a very complex inflation dynamic, and policy will also be impacted by the implications of commodity prices. The RBNZ next week, are expected to cut by 50 basis points as growth continues to slow, labor markets cool, and inflation continues to move down below central target. China will obviously have a very big impact on the economy and the trajectory of rates going forward there. Out of China itself, we do get aggregate financing data, again it's unlikely that the events in China that we've seen over the last couple of weeks will be fully incorporated into that data, but ultimately it's a big week for China, but by extension a big week for the region, for global equity sentiment, for commodities and even the dollar.
Matt Jones
And how about further afield? Do we think the developments in China will be impactful for Europe? And what will we be watching out for next week?
Neil Staines
Yeah, thanks, Matt. All of Europe will be watching developments in China very closely, I'm sure. Our analysis suggests that Europe and European companies are much more dependent on China growth or open to it, depending on your perspective and by extension, they will benefit the most. Certainly relative to the US from China rebound.
Another reason why we see recent market Euro bearishness as perhaps mistimed at this juncture. Now, next week we get German factory orders for August, Eurozone retail sales, also for August, and even German trade for August. Perhaps more timely, eurozone Sentix investor confidence, the forward looking measure for October.
Data should likely be viewed as a benchmark, by which to gauge the impact of the China recovery. If that does occur as a result of the recent measures on the European growth trajectory and not necessarily expecting to see any impacts so far. Fiscal has also been a big focus within Europe this week for France in particular, as they pushed back the compliance with the Maastricht debt and deficit criteria to 2029. That's perhaps a defacto fiscal boost relative to compliance there.
However across Europe and also similarly in the UK, it will be interesting to watch that interaction between what ultimately will have to be tighter fiscal policy to get debt and deficits under control and looser, monetary settings to stimulate the economy while that process takes place. So fiscal monetary and global growth drivers it will be a big focus. For Europe next week and beyond.
Matt Jones
Now we're pretty much T minus one month from the US election. How are we thinking about the US macro settings and what events are likely to impact our views next week?
Neil Staines
Absolutely fast approaching the US presidential election. And it's another big week for the US from a macro perspective. In this week's blog we discuss the continued disinflation and growth moderation that we see, although still positive growth in the US, as a clearer sign of a soft landing or a more Goldilocksy configuration, as other developed markets central banks joined Fed bearishness in terms of monetary policy, not economic projections. Next week we get the FOMC minutes, and that'll be interesting as a gauge of the strength of views on the board as to the active policy increment, would it be 25 or 50 going forward and specifically in that November meeting. And also the concern over the normalization in the labor markets. Are we comfortably gravitating back down towards that equilibrium?
Or is there something more sinister, a foot. Beyond that the report may be a little outdated. And even more so after the big event of next week, US CPI for September, and on the headline level that we expect inflation to slow down to 2.3% year on year in September. Friday also brings the start of Q3 earning season in the US with a couple of US banks.
So ultimately with China, Europe, US, and global geopolitics, all in focus. It's going to be another fascinating week for global financial markets.
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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