Treasury Market Commentary –

Global economic outlook deteriorates

A weekly economic update from our Treasury team. 

Published

8th July 2022

Category

Macro Commentary

Growing recession fears are driving a general risk-off sentiment in the market, leading to further weakness in global equities and strengthening the US dollar. The Bank of England said this week that the global outlook had deteriorated materially.

Central banks continue to actively hike interest rates as they battle surging inflation, believing that front-loading rate rises now gives them optionality later, but the concern is that over-aggressive tightening will lead to recession, which in turn will require cuts to interest rates to stimulate growth.

The UK central bank are finely balanced on the need for a bigger 0.50% hike in August, with this cycle expected to peak just below 3% early next year.

The Fed look increasingly likely to hike rates by a further 0.75% later this month before peaking around 3.25% in the first half of 2023.

Meanwhile in Europe, the ECB will raise rates by at least 0.25% this month, though the market has started to reprice just how aggressive they can be going forward amid growing risks of gas supply issues and a weakening growth outlook.

On the exchanges, dollar strength continues to dominate, on the interest rate differentials and its safe-haven status, although GBP/USD has recovered from a 2-year low following the Prime Minister Johnson’s resignation. EUR/USD has dropped to 20-year lows, whilst GBP/EUR has pushed up to a weekly high.

Today’s focus will be on the vitally important US payrolls data due at 1.30pm.

GBP/EUR – 1-year chart

Week Ahead

Date

Release

Last

Expected*

13/7/22

UK Industrial Prod. YoY

0.70%

n/a

13/7/22

UK Manufacturing Prod. YoY

0.5%

n/a

13/7/22

UK Construction Output YoY

3.9%

n/a

13/7/22

US CPI YoY

8.6%

8.8%

14/7/22

UK RICS House Price Balance

73%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1995

USD/JPY

135.80

GBP/EUR

1.1820

AUD/USD

0.6825

EUR/USD

1.0150

USD/CHF

0.9750

GBP/AED

4.4050

XAU/USD

1742

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7189

-2.65%

S&P

3902

-18.12%

EUROSTOXX

3488

-18.84%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+2.67%

5-year

+2.45%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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