Treasury Market Commentary –

Markets expect a 0.75% rate rise next week

A weekly economic update from our Treasury team.

Published

28th October 2022

Category

Macro Commentary

Sunak’s appointment as prime minister has been well received by markets with UK assets reacting positively on hopes of a more stable economic and political outlook.

However, the hugely important medium-term fiscal plans have been delayed until November 17th, but critically will now be accompanied by a full forecast from the independent OBR as the government looks to restore its economic credibility, with currently a £35 billion reported shortfall in the finances.

The Bank of England is set to raise interest rates by 0.75% next week, with markets forecasting a peak of around 4.85% in the second half of next year.

In the US, weaker housing data led to some repricing of the interest rate curve and a general sell-off in the dollar, as markets speculate on a lower peak in US interest rates. Despite the shift in sentiment, the economic fundamentals still very much favour the US, and we fully expect a further 0.75% rate increase next week followed by further hikes in the coming months.

The Europe Central Bank, meanwhile, raised their key interest rates by a further 0.75% yesterday as they continue to fight surging inflation, with the Euro also benefitting from a mild start to winter and the build-up of a strong inventory of gas supplies.

Global geopolitical risks are a growing concern going forward, particularly US-China relations which will increasingly drive market sentiment in the months ahead.

Against the ongoing uncertainty, markets remain extremely volatile and lacking conviction. GBP/USD has regained a foothold above 1.1500 post-Sunak, whilst GBP/EUR continues to trade within its 1.1250 – 1.1750 range.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

1/11/22

UK S&P/CIPS Manufacturing PMI

45.8

n/a

2/11/22

US FOMC Rate Decision (Upper Bound)

3.25%

4.00%

3/11/22

UK S&P/CIPS Services PMI

47.5

n/a

3/11/22

UK S&P/CIPS Composite PMI

47.2

n/a

3/11/22

UK Bank of England Bank Rate

2.25%

3.00%

4/22/22

US Change in Nonfarm Payrolls

263k

200k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1515

USD/JPY

146.95

GBP/EUR

1.1580

AUD/USD

0.6420

EUR/USD

0.9940

USD/CHF

0.9955

GBP/AED

4.2290

XAU/USD

1651

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7073

-4.21%

S&P

3807

-20.12%

EUROSTOXX

3604

-16.14%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.45%

5-year

+4.18%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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