Treasury Market Commentary –

Market volatility remains extremely high

A weekly economic update from our Treasury team.

Published

2nd September 2022

Category

Macro Commentary

Market volatility remains extremely high as inflation worries continue to drive momentum, with global interest rates being repriced aggressively higher. Further lockdowns in China are exacerbating the dire economic outlook.

The Bank of England are fully expected to raise rates by at least 0.50% this month, with the peak in rates now expected at 4.40% in Q2 2023. This raises the likelihood of a recession, added to the cost-of-living crisis and the ongoing supply chain issues and labour market shortages.

Longer term yields are trading at their highest levels in over a decade, with the 5-year now pushing up towards 3.50% and the 10-year above 3%.

The new prime minister will finally be announced next week and the fiscal response to the current crisis will be critical to the performance of the UK economy over the next 12 months.

In the US, Fed chair Powell remains absolute in his commitment to combat inflation, acknowledging the risk to economic growth. A further hike of 0.50% this month is fully priced, with 0.75% now a strong possibility.

The European Central Bank meet next week, and the market is now looking for an unprecedented hike of 0.75% despite the ongoing concerns over gas supplies this winter.

On the exchanges, dollar strength remains they key driver, whilst sterling has sold off aggressively on the heightened inflationary fears, posting its worst monthly fall since the 2016 Brexit vote.

 

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

5/9/22

UK New Car Registrations YoY

-9.0%

n/a

5/9/22

UK S&P/CIPS Services PMI

52.5

n/a

5/9/22

UK S&P/CIPS Composite PMI

50.9

n/a

8/9/22

UK RICS House Price Balance

63%

n/a

8/9/22

EU ECB Deposit Facility Rate

0.00%

0.50%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1560

USD/JPY

140.20

GBP/EUR

1.1585

AUD/USD

0.6800

EUR/USD

0.9975

USD/CHF

0.8795

GBP/AED

4.2480

XAU/USD

1701

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7136

-3.35%

S&P

3922

-17.71%

EUROSTOXX

3450

-19.72%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+3.97%

5-year

+3.44%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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