Treasury Market Commentary –

Rates now expected to hit 5.10% in 2023

A weekly economic update from our Treasury team.

Published

21st October 2022

Category

Macro Commentary

UK political instability continues to drive sentiment following the resignation of prime minister Truss, although UK assets had little reaction with markets hoping the new leader can restore some stability.

The medium-term fiscal plans will still be announced on October 31st as the government attempts to re-establish its fiscal credibility, likely to be at the expense of a deeper and more prolonged recession. The Office for Budget Responsibility’s independent assessment will be critical.

UK inflation has again risen above 10%, driven by soaring food prices, and retail sales figures this morning were extremely poor, further highlighting the squeeze on the consumer and ramping up pressure on the Bank of England ahead of the November 3rd meeting. The market is split on whether we get a 0.75% or a 1% hike, and the expected peak is now 5.10% by mid-2023 with long-term yields having dropped considerably over the past week. The Bank will also begin selling its stock of government bonds next month as it begins unwinding its QE program.

Markets have calmed somewhat following the reversal of most of the mini-budget but remain on high alert with politics continuing to drive short-term momentum.  

In the US, we fully expect another 0.75% hike in November as the Fed continue their aggressive path of policy tightening, whilst the European Central Bank is also forecast to raise rates by a further 0.75% next week as they continue to fight surging inflation.

Against the ongoing uncertainty, 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 continues to trade within its 1.1250 – 1.1750 range.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

24/10/22

UK S&P/CIPS Services PMI

50.0

n/a

24/10/22

UK S&P/CIPS Composite PMI

49.1

n/a

27/10/22

EU ECB Refinancing Rate

1.25%

2.00%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1185

USD/JPY

150.45

GBP/EUR

1.1455

AUD/USD

0.6260

EUR/USD

0.9770

USD/CHF

1.0070

GBP/AED

4.1090

XAU/USD

1618

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

6943

-5.97%

S&P

3665

-23.09%

EUROSTOXX

3492

-18.74%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.85%

5-year

+4.67%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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