Your Leading Indicators | Rate Hikes | Cheaper Sterling | ESG Outperformance
Discover key economic and financial metrics, and what to look out for in the week ahead.
2 minutes to read
Here we look at the leading indicators in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
Rate hikes to continue if higher inflation persists?
Last week the Bank of England increased its interest rate by 25bps to 1.25%, while the US Federal Reserve implemented a 75bp rate hike, lifting its interest rate to a range of 1.50% to 1.75%. The BoE has stated that it will act ‘forcefully’ on interest rates to tame rising prices, making tomorrow’s inflation data release for May an important one. Money markets are placing an 80% chance of a 50bp rise from the BoE in July and expect almost 100 basis points of tightening by September.
The rising cost of debt
In the aftermath of the rate hikes from the two central banks, UK SONIA 5-year interest rate swaps hit 2.8%, up from 2.1% one month ago and 1.0% at the beginning of the year. Debt financing is therefore more expensive for investors looking to acquire assets. However, overseas buyers may find investing into UK CRE less expensive, as sterling has fallen to $1.23 because of the uncertainty surrounding interest rates. This is important considering cross border investors account for over 50% of all UK CRE investment YTD.
ESG markets continue to outperform
With over £3tn in ESG assets under management globally, corporates continue to align to the idea that enhanced returns can coincide with social and environmental objectives. This is aided by the outperformance of global ESG equity funds, which are down -11.7% YTD due to the wider equity market sell off, while their non-ESG counterparts which are -14.8% lower. Our analysis outlines that this outperformance also translates to commercial real estate, with green rated buildings achieving a sales price premium compared to non-rated equivalent buildings.
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