Treasury Market Commentary –

UK economy shows resilience

A weekly economic update from our Treasury team.

Published

26th January 2024

Category

Macro Commentary

UK data this week showed the economy remains relatively resilient given the challenges, with the market scaling back rate cut expectations. The Bank of England meets next week with no change expected, though a split decision still seems likely. The market is forecasting an initial rate cut in June and is now pricing the total number cuts in this cycle to be less than 1%.

US equities have hit new highs driven by strong earnings data, and China weighing up a huge stimulus package to lift its ailing economy, leading to a risk-on sentiment. US stocks also remain underpinned by a strongly outperforming economy and expectations of aggressive rate cuts from the Fed. Next week sees the first Fed meeting of the year with no changes to policy expected yet.

The European Central Bank kept policy on hold this week as widely expected but is still forecast to cut rates by around 1.25% this year, with inflation falling significantly, and data this week highlighting further economic weakness and a bleak growth outlook.

Geopolitics remains key to market momentum and the ongoing tensions in the middle east are a major concern, with the turmoil in the red sea causing disruption to supply chains and driving up costs, fuelling fears of a broader economic fallout. The situation is also adding to global inflationary pressures.

On the exchanges, stronger than expected UK data has underpinned sterling, particularly against the Euro, hitting year-to-date highs above 1.1700, with the outlook for interest rate differentials remaining key.

GBP/EUR – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

30/1/24

UK Mortgage Approvals

50.1k

n/a

31/1/24

US FOMC Rate Decision (Lower Bound)

5.25%

5.25%

1/2/24

UK Bank of England Bank Rate

5.25%

5.25%

2/2/24

US Change in Nonfarm Payrolls

216k

168k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2675

USD/JPY

148.25

GBP/EUR

1.1655

AUD/USD

0.6575

EUR/USD

1.0875

USD/CHF

0.8685

GBP/AED

4.6550

XAU/USD

2021

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7529

-2.63%

S&P

4894

+2.61%

EUROSTOXX

4582

+1.35%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.33%

5-year

+3.79%


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