Treasury Market Commentary –

Markets await mini-budget U-turn

A weekly economic update from our Treasury team.

Published

14th October 2022

Category

Macro Commentary

The turmoil on financial markets persists as the fallout from the mini-budget continues to play out, with growing speculation of an imminent government u-turn. 

Market focus is on the chancellor’s medium term fiscal plans due on October 31st as the government attempts to restore its credibility. The Office for Budget Responsibility’s independent assessment will be critical.

The Bank of England’s emergency support operation finishes today and worked well in calming markets. The Bank is fully expected to raise interest rates by 1% on November 3rd and take Bank rate to 5.50% by mid-2023.

The economy unexpectedly shrank by 0.3% in August and the risks of a recession continue to grow with much higher interest rates still to come. The jobs market remains resilient, with wages increasing by 6% and the unemployment rate down to an historically low of 3.5%. The latest inflation data is due next week, with the headline rate expected to be 9.9%, showing the stark squeeze on disposable incomes continues, despite expectations we are nearing the peak.

In the US, inflation has dropped to 8.2% but despite hopes we may have seen the peak, the Fed will continue raising rates in the months ahead with a 0.75% hike fully priced in for November 2nd, and rates expected to peak around 4.80% mid-2023.

In Europe the central bank is forecast to raise rates by a further 0.75% at the end of the month despite the ongoing concerns over gas supplies during the winter months and the growing risks of recession.

On the exchanges, markets remain extremely volatile and lacking conviction. GBP/USD is finding some initial demand below 1.1000 but remains capped at the significant 1.1500 level, whilst GBP/EUR has edged higher within its 1.1250 – 1.1750 range.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

17/10/22

UK Rightmove House Prices YoY

8.7%

n/a

19/10/22

UK CPI YoY

9.9%

n/a

19/10/22

UK RPI YoY

12.3%

n/a

19/10/22

EU CPI YoY

9.1%

n/a

21/10/22

UK Retail Sales YoY

-5.4%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1300

USD/JPY

147.50

GBP/EUR

1.1560

AUD/USD

0.6330

EUR/USD

0.9770

USD/CHF

0.9975

GBP/AED

4.1500

XAU/USD

1667

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

6850

-7.23%

S&P

3669

-23.00%

EUROSTOXX

3362

-21.78%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.00%

5-year

+4.87%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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