ACM Update 12-09-22

Written by: David Comber
Date posted: 12-09-22
Queen Elizabeth II

An historic week last week with the sad passing of Queen Elizabeth II. The Aston team are saddened by the news, and our thoughts with the Royal Family at this time. The UK now enters a period of national mourning until after the state funeral next Monday.

The passing of the Queen filled UK headlines last week. Mourners gathered outside Buckingham Palace to pay their respects, and also to see King Charles III for his return to London on Friday. Parliament also spent the day on Friday paying tribute.

PLEASE NOTE: Due to the bank holiday announced over the weekend for the funeral of Her Majesty the Queen, the Aston offices will be closed on Monday 19th September.

In market news Liz Truss won the Tory leadership race, albeit by less of a margin than some had been expecting. Having been sworn in on Tuesday, she faced Parliament for PMQ’s on Wednesday and then rolled out her plan to solve the energy crisis on Thursday. Initial market reaction to this seemed positive, but whether it will help inflation overall remains to be seen.

The Bank of England Governor, Andrew Bailey, faced criticism last week about the MPC’s handling of the inflation situation. Asked if there was much the Bank could do to avoid a recession in the UK, he replied: "Insofar as the war is having this huge effect, the answer to that would be no”. Such comments were a factor in sending GBP-USD hit its lowest level since 1985 on Wednesday afternoon, before bouncing back by 2% by the end of the week. Recent moves are illustrated in the chart below:


The Bank of England have delayed their upcoming interest rate announcement by a week due to the national mourning period. Their interest rate will now to be announced Thursday 22nd September at midday, which expected to be a further hike, potentially half a per cent once more.

On the continent, the ECB took drastic action to combat inflation last week in their latest policy meeting. They moved their main interest rate up by 75 basis points to 1.25%, as they continue to play catchup with inflation. The move was somewhat expected but did help to drive the Euro to its highest position against the Dollar in three weeks, moving over a per cent above parity. Lagarde stated in her press conference that the ECB will take “the necessary steps” to get inflation back to their 2% target “in the medium term”.

Sterling-Euro remained volatile last week, especially with the Parliamentary & policy changes taking place. Recent moves are in the chart below:


On the US side of the equation, Jerome Powell continued to reaffirm the Fed’s pledge to cool inflation in his latest press conference. His hawkish tone continues, and we expect a further sizeable rate hike from the Fed next week (21st September). Fed Member Christopher Waller is calling for a “significant increase” in the current base rate. Meanwhile former chair Janet Yellen thinks the Fed will need “skill and good luck” if it is to avoid a recession.

Elsewhere we also saw sizeable interest rate moves in Australia (50 basis point hike) and Canada (75 basis point hike) last week.

This week:

Monday – UK GDP m/m (0.2%, versus 0.3% expected), Manufacturing (0.1%, versus 0.3% expected)

Tuesday – UK Unemployment/Claimant Count/Average Earnings (07:00 UK time), German ZEW Economic Sentiment (10:00), US CPI (13:30)

Wednesday – UK CPI expected 10.1% (07:00), US PPI (13:30)

Thursday – US Retail Sales (13:30)

Friday – UK Retail Sales expected -0.5% (07:00)

The Bank of England meeting has been deferred for a week as mentioned, however there are a number of UK data releases this week. UK GDP has already landed this morning, showing a very small growth of 0.2% in July versus the month before. Not great considering how poor June was with the extra bank holiday. Unemployment, claimant count and average earnings data all land on Tuesday morning, with average earnings still circa half of inflation.

US and UK inflation are both released too, with the latter expected to remain at 10.! According to estimates. Is this an optimistic expectation that inflation would have stabilised, or just what the Bank of England are hoping will be the case?

Retail sales for the US and UK will both also arrive before the end of the week. These releases maybe a factor in swaying the Bank of England’s decision, especially given they now have an extra week to digest the data.

Please do reach out to the team this week with any requirements you may have. Dollar and Euro remain favourable for any clients looking to convert to GBP, despite the recent retracement on the former.

Have a great week.