Treasury Market Commentary –

Inflation expected to stay at 10% well into 2023

A weekly economic update from our Treasury team.

Published

25th November 2022

Category

Macro Commentary

Risk sentiment has turned more positive following the Fed minutes this week, which showed most officials leaning towards a slower pace of rate hikes and led to a relief rally in global equities and a generally weaker US dollar. Further lockdowns in China will remain a drag on global growth but have largely been overlooked by markets.

In the UK, economic data remains dire, but was slightly better than expected, and we fully expect the Bank of England to raise rates by a further 0.50% next month, with inflation expected to remain above 10% well into next year. Analysts forecast rates to peak around 4.50% mid-2023.

In the US, a rate hike of 0.50% is fully priced in for December, with markets forecasting a peak of 5% next year despite hopes that inflation has already peaked. The thanksgiving holidays have led to a general drop in liquidity as traders begin to focus on the end-of-year and risk mitigation.

The European Central Bank also looks set to raise rates by at least 0.50% in December as they remain fully focussed on stubbornly high inflation at the risk of a deeper recession.

On the exchanges, a more risk on sentiment and some surprisingly weak US data has led to dollar weakness across the board. GBP/USD has pushed up to 3-month highs above the 1.2100 level, whist GBP/EUR remains volatile within its 1.1250 – 1.1750 range, with a real lack of conviction.

Little in the way of data next week, with Fridays US payrolls numbers the key focus.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

29/11/22

UK Mortgage Approvals

66.8k

n/a

1/12/22

UK S&P/CIPS Manufacturing PMI

46.2

n/a

2/12/22

US Change in Nonfarm Payrolls

261k

200k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2090

USD/JPY

138.85

GBP/EUR

1.1610

AUD/USD

0.6750

EUR/USD

1.0410

USD/CHF

0.9455

GBP/AED

4.4400

XAU/USD

1750

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7466

+1.11%

S&P

4027

-15.50%

EUROSTOXX

3961

-7.83%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.37%

5-year

+3.85%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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