Weekly Market Update – 19 August, 2022
In the UK and Eurozone, the YoY CPI growth was released at 10.1% and 8.9%, respectively. On the back of the high inflation data, the market expects the Bank of England to increase the base rate above 3% and the ECB above 1% by the end of 2022. The EUR 2 year swap rate increased by 30 bps WoW whereas the 5 year is up 26 bps. In the UK the swap rates rose by 55 bps as the BoE is forecasting inflation to increase to 13% in Q4 2022. In terms of FX, GBPUSD is trading 2.4% lower at 1.185 and EUR is almost back at par to USD at 1.006. There hasn’t been much movement in the European equity markets this week.
In US, the Fed minutes were released this week which signaled that higher interest rates might be needed for longer and economists are debating whether the Fed will raise the base rate by a successive 75 bps or if they will start to implement smaller increases. The S&P 500 is trading at 4,284, similar to last week.
On Monday, China cut its medium-term lending rate for one-year loans to the banking system by 10 bps to 2.75% in an effort to stimulate the economy. The Chinese economy has suffered from repeated coronavirus lockdowns and only narrowly escaped a contraction in Q2 2022.