Treasury Market Commentary –

Some positive numbers ahead of next week’s mini budget

A weekly economic update from our Treasury team.

Published

16th September 2022

Category

Macro Commentary

The UK jobs market remains robust, with wages rising 5.5% and unemployment down to 3.6%, its lowest level since 1974. However, with inflation sticking around 10%, the squeeze on disposable incomes continues to weigh on the economy. The government will deliver a mini-budget next Friday.

The Bank of England meet next Thursday, with the market favouring a 0.50% hike, though there is a real possibility of 0.75%. Further rate increases are expected in the months ahead, with the peak now expected to hit 4.40% mid-2023.

US inflation came in at a higher than expected 8.3%, leading to an aggressive sell-off in global equity and bond markets, and reinforcing the view that the Fed will hike by a further 0.75% next week, with rates forecast to peak around 4.45% next year.

The European Central Bank are also expected to continue their aggressive cycle of policy tightening following the unprecedented 0.75% increase earlier this month, as they focus primarily on inflation, despite the dire economic outlook and the huge concerns over gas supplies.

Market volatility remains at extreme levels on the huge uncertainty, with the global economy facing the unprecedented challenges of surging inflation, rising interest rates, war in Ukraine, lockdowns in China and the ongoing supply chain issues.

On the exchanges, dollar strength continues to dominate following the US inflation print this week, with sterling very much on the back foot.  

GBP/USD rallied towards 1.1750 early this week before an aggressive sell-off towards its 30-year lows at 1.1400, whilst GBP/EUR has dropped to an 18-month of 1.1425. EUR/USD is back below the 1.0000 parity level.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

19/9/22

UK Rightmove House Prices YoY

8.2%

n/a

21/9/22

US FOMC Rate Decision (Upper Bound)

2.50%

3.25%

22/9/22

UK Bank of England Bank Rate

1.75%

2.25%

23/9/22

UK S&P/CIPS Services PMI

50.9

n/a

23/9/22

UK S&P/CIPS Composite PMI

49.6

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1415

USD/JPY

143.65

GBP/EUR

1.1430

AUD/USD

0.6695

EUR/USD

0.9990

USD/CHF

0.9640

GBP/AED

4.1930

XAU/USD

1659

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7291

-1.27%

S&P

3901

-18.15%

EUROSTOXX

3545

-17.52%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.11%

5-year

+3.67%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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