In this episode:
- UK: Activist Policy Ahead Amid Structural Weakness
- Global: Big Week for Data, Bigger Week for Markets
- US: Dominant Force in Global Market Sentiment
UK: Activist Policy Ahead Amid Structural Weakness
- UK economic performance remains fragile despite a stronger-than-expected February GDP print, which may reflect front-loaded exports.
- The employment report (Tuesday) and CPI data (Wednesday) will be crucial for gauging the growth-inflation trade-off and guiding the Bank of England’s policy.
- UK interest rates are likely to move significantly lower over 2025, as fiscal tightening weighs further on consumers.
Global: Big Week for Data, Bigger Week for Markets
- Escalating US-China trade tensions raise geopolitical and economic uncertainties, with supply chains and alliances in flux.
- Key data points include Germany's ZEW sentiment index, China’s Q1 economic suite, and Japan’s CPI—each critical to regional policy outlooks.
- Central bank focus turns to the Bank of Canada (likely on hold) and the ECB (expected to cut rates to 2.25%), bringing policy firmly into the neutral range.
US: Dominant Force in Global Market Sentiment
- Markets will closely watch the rhetoric from Trump and the White House on tariffs, alongside a slew of Fed speakers clarifying monetary reaction risks.
- The Fed faces a delicate balancing act between transient inflation impacts from tariffs and negative demand pressures.
- Q1 earnings season continues, with investor attention on forward guidance amid extreme uncertainty - especially from banks, airlines, and Netflix.
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 against what has been a very complex backdrop at the moment, the UK comes back into focus next week. So how are we thinking about the UK and UK data?
Neil Staines
Yeah, absolutely. Thanks very much, Matt. It's been a very complex macro backdrop indeed, as global trade uncertainty continues. In some ways, the 90-day tariff course from the US was a relative disadvantage to the UK, having attracted only the baseline 10% level originally, against much higher levels globally.
Nevertheless, it is likely that the UK's financial market fortunes will be more dependent on the evolving global risk backdrop than on specific UK factors at this complex juncture. That risk backdrop is looking increasingly fractious.
Next week, we get the UK employment report for February and March on Tuesday — an important gauge of how employment is faring more broadly. We also get March CPI data on Wednesday. This growth and inflation trade-off is crucial for the Bank of England's rates trajectory over the coming months. While February GDP was stronger than expected, this may reflect a front-loading of manufacturing exports ahead of the recent tariff announcements, rather than a broad-based improvement.
Ultimately, we continue to see a weak macro backdrop for the UK, and expect a more activist Bank of England ahead, particularly as fiscal tightening further weighs on the consumer. A glimmer of hope perhaps comes from the potential for UK rates to move significantly lower over the course of 2025.
Matt Jones
Now despite the reciprocal tariff pause this week — and of course the escalation of tariff threats on China — the global trade and economic data is clearly in focus. So what are we looking for in the global economy next week?
Neil Staines
Absolutely. Thanks, Matt. With US-China trade tensions escalating in an unprecedented manner, the global economy is under the spotlight. We discuss this further in this week's blog, but the implications for supply chains, geopolitical alliances, and regional and global economic trajectories are significant.
Next week brings several key data points. First, Germany's ZEW survey for April will provide a key gauge of sentiment as markets assess the domestic stimulus versus global uncertainties. Second, China releases a full suite of data — GDP, industrial production, retail sales, investment, and unemployment — offering a benchmark for Q1 growth before the latest bout of uncertainty.
On Friday, we get Japanese CPI. It's a complex backdrop for the Bank of Japan, with inflation pressures suggesting hikes while broader risk, growth, and trade dynamics argue for caution.
In central banking, the Bank of Canada is expected to remain on hold, but its commentary will be closely watched for assessments of trade-related impacts on growth and inflation. The ECB is expected to cut rates by 25bps to 2.25%, a level broadly within neutral range. While no updated forecasts are due until June, markets will look for guidance on the trajectory from here. Overall, a big week for the global economy and for global assets.
Matt Jones
Now with US tariff policy continuing to take center stage, it's not hard to imagine that the US will continue to be the dominant focus for markets next week. So how are we looking at the US into next week?
Neil Staines
Absolutely. The US remains front and center — not just due to Trump’s lead on global trade and tariffs, but also because of its outsized influence on global financial markets and risk appetite.
In addition to White House commentary, we’ll hear from several Fed speakers. These will be closely watched for insight into how the Fed is weighing the transient inflation impact from tariffs against potential negative effects on demand and financial markets, and what this means for monetary policy.
We’ll also get more from the Q1 US earnings season, with updates from banks, airlines, and notably Netflix on Thursday. Investor focus will be on forward guidance — or the absence of it — as firms navigate high uncertainty.
Either way, next week promises to be another volatile week. Another week where you can't take your eyes off the headlines and markets, even for a minute. It’s a hugely important period for the global economy and beyond.
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.
Disclosure
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