Treasury Market Commentary –

Market uncertainty to start 2024

A weekly economic update from our Treasury team.

Published

5th January 2024

Category

Macro Commentary

Markets begin the year with a risk-off tone as increasing geopolitical tensions and the rising threat of conflict spreading in the Middle East weigh on global sentiment.

It is likely to be another challenging year for markets with subdued global growth, and major central banks expected to embark on rate-cutting cycles as the focus switches from inflation to stimulating economic demand. Elections in the UK and US will only add to the uncertainty and increase volatility. The ongoing weakness in China and a volatile oil price add to the challenging economic outlook.

The Bank of England continues the ‘rates higher for longer’ mantra, though markets are pricing in a 70% probability of an initial rate cut in May. The Bank faces the unprecedented challenges of balancing an exceptionally weak growth outlook against inflation and average earnings that, despite the recent falls, remain too high. The UK economy is also particularly sensitive to interest rates and the full effect of previous rate hikes has still to fully feed through.

The US central bank is expected to be the first to cut rates, as early as March, as inflation has dropped significantly and they look to support economic growth, which had driven the recent strength in US equities. Today’s key focus is the payrolls data due at 1.30pm, whilst next week’s highlight will be US inflation data due Thursday.

The European Central Bank are forecast to lower rates in April as the underlying economic fundamentals within the bloc remain particularly weak.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

11/1/24

US CPI YoY

3.1%

3.2%

12/1/24

UK Manufacturing Prod. YoY

0.8%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2685

USD/JPY

144.95

GBP/EUR

1.1615

AUD/USD

0.6695

EUR/USD

1.0920

USD/CHF

0.8515

GBP/AED

4.6590

XAU/USD

2042

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7723

-0.13%

S&P

4688

-1.70%

EUROSTOXX

4474

-1.05%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.20%

5-year

+3.60%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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