Weekly Market Update – 9 September, 2022
The Federal Reserve has hardened its forecasts that there will be a third straight large rate hike later this month, as the fight to control inflation continues. With the meeting quickly approaching, we are seeing an active debate between 50-75bps rate increase, but markets have increasingly priced in a 75-bps climb.
Following recent wide-spread volatility, swap markets have also seen increases, with both LIBOR and Term SOFR swap rates rising steadily. The 2-year swap rates are trending around 3.8% and 3.55% for LIBOR and SOFR respectively.
On Thursday, the ECB announced a 75-basis point interest rate rise, moving the benchmark deposit rate to 0.75%. Additionally, spokespeople announced that they intend to keep raising interest rates since inflation in the Eurozone is still very high and is expected to stay above target for a considerable amount of time.
In the UK, the new Prime Minister Liz Truss has promised further tax cuts in an effort to reduce falling GDP in the fourth quarter. GBP has continued to weaken, close to 15% this year as the UK growth outlook falls. In China, the People’s Bank of China announced that it would reduce the amount of foreign currency banks need to hold, lessening the pressure on the Yuan, which has declined by more than 8% this year.
In the commodity markets, energy and oil continue to edge higher following continued turmoil in the Russia-Ukraine conflict. Gold and precious metals are inversely following bond yields, hitting session lows this week, but expected to see an aggressive uptick later this year.