Update -

Treasury Market Commentary

A weekly economic update from our Treasury team.

Published

1st October 2021

Category

Macro Commentary

The UK economy grew by a stronger than expected 5.5% in the second quarter but is still 3.3% smaller than it was pre-pandemic.

There are considerable challenges ahead, including fuel, supply, and labour market shortages, surging energy prices, the end of furlough and tax rises. The Bank of England expects the economy to reach pre-pandemic levels early next year, lagging both the US and European recoveries.

However, rising inflationary pressures are leading the market to price in two to three rate increases in 2022, starting in February.

UK 10-year yields hit 1% this week for the first time since March 2020, whilst the US 10-year is back above 1.50%.

The Fed looks increasingly likely to begin tapering its QE program in the coming months as the US economy continues to outperform.

In Europe, ECB head Lagarde reiterated that rising inflation will be transitory, and they will not overreact.

On the exchanges, sterling has weakened considerably, particularly against the dollar.

GBP/USD hit a new year-to-date low, dropping towards 1.3400, whilst GBP/EUR fell below 1.1600 before stabilizing.   

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

5/10/21

UK New Car Registrations

-22%

n/a

5/10/21

UK Markit/CIPS Services PMI

54.6

n/a

5/10/21

UK Markit/CIPS Composite PMI

54.1

n/a

6/10/21

UK Markit/CIPS Construction PMI

55.2

n/a

8/10/21

US Change in Nonfarm Payrolls

235k

500k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

EUR/USD

1.1585

USD/JPY

111.10

GBP/USD

1.3450

AUD/USD

0.7200

GBP/EUR

1.1610

GBP/AED

4.9400

USD/CHF

0.9305

XAU/USD

1755

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7103

+9.95%

S&P

4307

+14.68%

EUROSTOXX

4066

+14.47%

UK Benchmark Rates

Libor

 

Swap Mid (SONIA) ss((SONIA)

 

3 month

0.08188%

2 year

+0.51%

12 month

0.37525%

5 year

+0.76%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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