Treasury Market Commentary –

Focus in Europe remains on the gas supplies ahead of winter

A weekly economic update from our Treasury team.

Published

12th August 2022

Category

Macro Commentary

The UK economy shrank by 0.6% in June, and contracted by 0.1% over the second quarter, which was slightly better than expected.

The Bank of England look set to raise interest rates further next month, potentially by another 0.50%, despite their downbeat assessment of the economic outlook, with inflation expected to reach 13%.

In the US, inflation slowed to 8.5%, prompting hopes we have already seen the peak. The Fed, however, are likely to continue their aggressive path of policy tightening with a further 0.50% hike expected next month.

Whilst in Europe, focus remains on the gas supplies ahead of winter, with the potential for further disruptions from Russia, which will dampen economic demand and growth. Despite the challenging outlook, the central bank remains likely to further hike interest rates in the months ahead.

Geopolitical risks are a growing concern with tensions increasing between the US and China and the implications this may have for the global economy. The conflict in Ukraine also shows no signs of ending and will continue to impact supply chains and the general economic sentiment.

Next week there is a lot of UK data, including inflation, jobs, and retail sales, that will give us an updated view of the current state of the economy.

On the exchanges, summer trading is adding to lower liquidity and a lack of any real conviction. The dollar has weakened following the lower inflation rate, but the fundamentals continue to favour the US. GBP/USD is currently holding above 1.2200, whilst GBP/EUR remains within a 1.1750 – 1.2000 range.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

15/8/22

UK Rightmove House Prices YoY

9.3%

n/a

16/8/22

UK Average Weekly Earns. 3M/YoY

6.2%

n/a

16/8/22

UK Unemployment Rate

3.8%

n/a

17/8/22

UK CPI YoY

9.4%

n/a

19/8/22

UK Retail Sales YoY

-5.8%

n/a

23/8/22

UK S&P/CIPS Services PMI

52.6

n/a

23/8/22

UK S&P/CIPS Composite PMI

52.1

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2205

USD/JPY

133.25

GBP/EUR

1.1835

AUD/USD

0.7125

EUR/USD

1.0315

USD/CHF

0.9415

GBP/AED

4.4830

XAU/USD

1791

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7465

+1.10%

S&P

4207

-11.73%

EUROSTOXX

3757

-12.59%

Swap Mid (SONIA)

 

2-year

+2.88%

5-year

+2.48%


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