In this episode:
- Global Macro & Trade Tariffs: Market Volatility Ahead
- ECB Meeting: Policy Outlook and Inflation Risks
- US Economic Outlook: Focus on Exceptionalism and Labor Market
Global Macro & Trade Tariffs: Market Volatility Ahead
- Tariff rhetoric has resurfaced, with the March 4 deadline set for increased tariffs on Canada, Mexico, and China, driving FX volatility.
- Despite a weaker U.S. yield curve, a strengthening dollar reflects ongoing uncertainty in global trade.
- China's Caixin PMI and global PMI data next week will be key indicators for economic stabilization and forward-looking market sentiment.
ECB Meeting: Policy Outlook and Inflation Risks
- ECB minutes signal debate over whether policy remains restrictive, with inflation risks shifting to the upside.
- European economic data (CPI, unemployment, and retail sales) will set the stage for policy expectations.
- The focus will be on ECB projections, especially around inflation and growth risks, rather than the widely expected 25bps rate cut.
US Economic Outlook: Focus on Exceptionalism and Labor Market
- Concerns are emerging over how long the U.S. can sustain above-potential growth amid tariff tensions and extreme tech positioning.
- Key data releases include ISM manufacturing/services, ADP employment, trade data, and most crucially, non-farm payrolls.
- The potential impact of government hiring reductions under Trump will be a major factor in assessing labour market strength.
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
So we've had global trade tariffs and geopolitical events, all overlaying the macroeconomic environments at the moment and leading to the ever complex financial backdrop. So what are we thinking from a global perspective next week?
Neil Staines
Yeah, great question, Matt. It's certainly been another complex week. Indeed.
Tariff rhetoric has returned. With the restatement of the March the fourth deadline for 25% tariffs on Canada and Mexico as well as an additional 10% on China , from President Trump in between receiving Macron, Starmer, and Zelensky to the White House this week.
But that tariff talk has really been the dominant driver of FX and FX volatility this week. With the dollar strength, the knee jerk response despite the lower yield curve in the US and narrower yield differentials globally.
Headlines around the March the fourth deadline will clearly continue to be significant. Indeed, negotiations up until that point are likely. And last minutes aversion is still possible and therefore market pricing is therefore not ultimately that clear. Now beyond tariff debates and discussions we have China CAIXIN PMI for February on Monday.
That'll be watched very closely to see whether there are any signs of stabilization. They'll be watched very closely to see if the signs of stabilization in the property market some demand focused stimulus measures, and also the the China Tech optimism has translated into a recovery in the forward looking indicators in China.
We get the final February readings of the global manufacturing and services, PMI and that'll also be watched for further insight into global growth optimism of course with one eye on global geopolitical headlines throughout next week.
Matt Jones
Now after a relatively quiet week for Europe next week brings the ECB meeting and thus focus back on the European economy. So how are we thinking about Europe and the ECB next week?
Neil Staines
Yeah, good question. It's it's certainly a big week for Europe next week. This week saw the release of the minutes from the January meeting with notable reference to the nearing the point where policy can not be said to be restrictive and that there is some evidence that inflation risks are shift into the upside.
So clearly some of the more hawkish members of the governing council and their rhetoric coming through into the minutes for the ECB. Structurally, we continue to see a weak trajectory for Europe. But we may be approaching the start of an important cyclical recovery especially if a new government coalition in Germany can find support for constitutional reform of the debt break.
And thus some form of fiscal expansion. Also in Europe. We get CPI for February on Monday, unemployment rate on Tuesday, and retail sales. On Thursday ahead of the ECB meeting where we expect 25 basis points which is pretty much fully priced by the market at this stage. Rather, we're gonna be focusing not on the rate cut, but on the updated projections, particularly in relation to inflation around the forecast horizon, the language around the policy rate in relation to neutral IE are we currently in restrictive territory?
Or do we drop that comparison? And of course on the balance of risks to growth and to inflation last time out, the balance of risks to growth were on the downside, but inflation was fairly balanced. It'd be interesting to see how they complete the square with that a 25 basis point cut and the change in narrative around the restrictive nature of rates.
But all to watch for the ECB this week.
Matt Jones
Now, of course the ECB will be important, but no doubt the US will dominate headlines and sentiment next week. How are we thinking about the US next week?
Neil Staines
Yeah, that's right, Matt. It's likely that the US does dominate sentiment and positioning Next week. Now in this week's blog, we discuss a number of current discussion points in global markets.
Notably, the emergence of question marks over the sustainability of US exceptionalism and the extent and duration of which the US can maintain above potential growth which set against tariff concerns and extreme positioning in the US Tech, has seen equity markets weakening This week, next week we get ISM manufacturing and service sector activity that's gonna be keenly focused upon, particularly given the fact that the PMI, the closely related survey pointed to a service sector index below 50 or in contraction.
So that's gonna be very closely watched on Wednesday of the next week. We get the ADP on Wednesday trade data on Thursday and, trade data itself might be very interesting in that a decline in the trade deficit may be seen as a bit more of a positive for US GDP, but really it's gonna be all about non-farm payrolls. We've noted previously our concerns over the US labor market, under Trump particularly. In terms of the impact of the likely removal of the significant and consistent government hiring under the Biden administration. Friday's payroll is a first look at how we the Doge and government streamlining may start to impact headline jobs, numbers, and we'll be watching that very closely indeed. So it's another huge week for the us culminating in another huge payroll Friday.
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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