Treasury Market Commentary –

Bond yields signify further rate rises

A weekly economic update from our Treasury team.

Published

18th August 2023

Category

Macro Commentary

A disappointing inflation reading this week, as well as a significant increase in earnings, further ramps up pressure on the Bank of England to continue raising interest rates.

Headline inflation dropped to 6.8%, driven by lower energy costs, but remains stubbornly above the 2% target, whilst wage growth accelerated at 7.8% in the three months to June, the strongest pace on record. Unemployment increased to 4.2%, its highest reading since July 2021.

The Bank of England is fully expected to increase rates by 0.25% next month, and again in November, taking rates to 5.75% by year end. Benchmark government bond yields are trading at their highest levels since 2008.

There are huge concerns, however, that the lagged effect of hikes over the past year are yet to impact households’ debt-servicing costs, although the cost-of-living pressures may begin to ease slightly if wages outpace inflation in the months ahead.

The US economy, meanwhile, continues to outperform with stronger than expected retail sales, though it seems likely the Fed will stay on hold for the remainder of this year, before cutting rates early next year as the focus switches from inflation to growth.

In Europe, markets have increased the probability of a further rate hike next month to over 50%.

On the exchanges, holiday trading conditions means lower liquidity and a lack of any real conviction, with GBP/USD remaining volatile between 1.2500 – 1.3000, and GBP/EUR at the top end of the established 1.1500 – 1.1750 range.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

21/8/23

UK Rightmove House Prices YoY

0.5%

n/a

23/8/23

UK S&P/CIPS Services PMI

51.5

n/a

23/8/23

UK S&P/CIPS Composite PMI

50.8

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2715

USD/JPY

145.30

GBP/EUR

1.1690

AUD/USD

0.6410

EUR/USD

1.0880

USD/CHF

0.8790

GBP/AED

4.6700

XAU/USD

1891

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7310

-1.90%

S&P

4370

+14.28%

EUROSTOXX

4227

+11.44%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.87%

5-year

+5.18%


View Arbuthnot Latham’s Private and Commercial deposit rates.

This document should be considered a marketing communication for the purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information given in this document is for information purposes only and is not a solicitation, or an offer to buy or sell any security or any other investment or banking product. It does not constitute investment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate to your individual circumstances.

You should seek professional advice before making any investment decision. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance is not a reliable indicator of future results. Investment returns may increase or decrease as a result of currency fluctuations.

The facts and opinions expressed are those of the author of the document, as of the date of writing and are liable to change without notice. We do not make any representations as to the accuracy or completeness of the material and do not accept liability for any loss arising from the use hereof. We are under no obligation to ensure that updates to the document are brought to the attention of any recipient of this material. Please note that this commentary may not be reproduced, distributed, disseminated, broadcasted, sold, published or circulated without prior consent from Arbuthnot Latham & Co., Limited. Arbuthnot Latham & Co., Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

 

 

Weekly

Treasury Market Commentary

Would you like to receive Arbuthnot Latham’s weekly Treasury Market Commentary directly to your email inbox? Click the button to subscribe to our email newsletters.

Subscribe to our newsletters

Contact Details

London Office

+44 (0) 20 7012 2599

DG-FX@arbuthnot.co.uk