Treasury Market Commentary –

Bank of England makes emergency intervention

A weekly economic update from our Treasury team.

Published

30th September 2022

Category

Macro Commentary

The Bank of England made an emergency intervention to calm markets following a week of real turmoil across all asset classes. The central bank will initially buy government bonds up to a value of £65bn and vowed to do more if necessary. They have also postponed their planned unwinding of QE. The bank is fully expected to raise interest rates considerably in the coming months, with the market pricing in a Bank rate of 6% next year.

The next meeting is scheduled for November 3rd, but an emergency meeting and substantial rate hike before then remains entirely possible if we see further market dysfunction.

UK growth figures this morning were better than expected, showing the economy grew by 0.2% in the last quarter, and 4.4% year-on-year.

In the US, Fed officials continue to be hawkish, and the central bank remains set to continue its aggressive cycle of rate hikes to bring down inflation, at the risk of potentially pushing the economy into recession.

The European Central Bank are also fully expected to raise rates again next month, potentially by another 0.75%, despite huge concerns over gas supplies, and the added uncertainty in Italian politics.

On the exchanges markets remain extremely volatile, with sterling dropping to an historic low of 1.0350 against the dollar, before recovering towards the 1.1200 level following the Bank of England intervention. GBP/EUR continues to see demand below 1.1000 and has pushed back up to 1.1300.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

3/10/22

UK S&P/CIPS Manufacturing PMI

48.5

n/a

5/10/22

UK S&P/CIPS Services PMI

49.2

n/a

5/10/22

UK S&P/CIPS Composite PMI

48.4

n/a

7/10/22

US Change in Nonfarm Payrolls

315k

250k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1180

USD/JPY

144.30

GBP/EUR

1.1365

AUD/USD

0.6520

EUR/USD

0.9845

USD/CHF

0.9760

GBP/AED

4.1120

XAU/USD

1672

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

6881

-6.81%

S&P

3640

-23.62%

EUROSTOXX

3279

-23.72%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.32%

5-year

+4.91%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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