Treasury Market Commentary –

Markets expect a 1% rise in the base rate next month

A weekly economic update from our Treasury team.

Published

7th October 2022

Category

Macro Commentary

It has been another hugely volatile week across global markets with the extremely challenging economic outlook and high level of uncertainty. The unprecedented action by the Bank of England last week has brought some calm to UK assets, and the Tory party conference passed without incident.

Markets fully expect the Bank of England to increase rates by 1% next month, and for rates to peak around 5.50% next year. The chancellor will announce his much-anticipated medium term fiscal plans on November 23rd, with much focus on what the OBR’s assessment of their economic impact will be.

In the US, Fed officials have continued to be hawkish, with markets looking for another 0.75% hike next month as they continue the cycle of aggressive monetary policy tightening.

Whilst in Europe, the energy crisis will likely remain a drag on the Euro and continue to add to inflationary pressures. Despite this, the European Central Bank are still fully expected to raise rates by 0.75% later this month, with rates expected to hit 2% by year end.

Recession remains a real threat globally with central banks focussing primarily on taming inflation.

Volatility has increased across commodity markets with OPEC cutting production, leading to higher oil prices which further stokes the global inflation problems.

On the exchanges, a general risk-off environment is underpinning the dollar, though market conviction remains low. GBP/USD rallied strongly from the record lows of 1.0350 but remains capped at the significant 1.1500 level, whilst GBP/EUR short-term levels to watch are 1.1150 – 1.1550. Today the focus is on the critical US payrolls data due at 1.30p.m.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

11/10/22

UK Average Weekly Earns. 3M/YoY

5.5%

n/a

11/10/22

UK Unemployment Rate 3Mths

3.6%

n/a

12/10/22

UK Manufacturing Prod. YoY

1.1%

n/a

13/10/22

US CPI YoY

8.3%

8.1%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1160

USD/JPY

145.00

GBP/EUR

1.1400

AUD/USD

0.6405

EUR/USD

0.9790

USD/CHF

0.9895

GBP/AED

4.0980

XAU/USD

1710

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

6997

-5.24%

S&P

3744

-21.44%

EUROSTOXX

3433

-20.12%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.36%

5-year

+5.05%


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