Your Leading Indicators |The 'Mini-Budget' | Rate Hikes | Geo-Political Headwinds
Discover key economic and financial metrics, and what to look out for in the week ahead.
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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.
Markets react to the 'mini-budget'
Kwasi Kwarteng's 'mini-budget', which included the biggest level of tax cuts since 1972 and a £60 billion energy package, had quite the impact on UK financial markets. Yesterday, sterling dropped to its lowest level on record to $1.035, it has since slightly appreciated to $1.08, albeit this remains at lows last seen in 1985. UK gilt yields have climbed across the curve and the 10-year yield has hit a peak of 4.29%, its highest level since 2008.The cost of debt is also elevated, with UK SONIA 5-year swap rates reaching a high of 5.06%.
Central banks to hike rates even further
In September, the US Federal Reserve implemented its third consecutive 75bp rate hike, while the European Central Bank implemented its first 75bp uplift. Central banks in Norway, Switzerland, Indonesia and Vietnam all increased interest rates last week, with Sweden’s Riksbank the biggest mover, hiking its interest rate by 100bps. Meanwhile, the Bank of England lifted its interest rate by a further 50bps to 2.25%. Following the UK government’s ‘mini-budget’, money markets now expect the interest rate to reach 6.25% by November 2023. However, both Oxford Economics and Capital Economics forecast the base rate to peak at 4.0% next year.
Geo-political headwinds intensify
Ripple effects from the Ukraine crisis continue to amplify challenges for the global economy. In fact, the OECD has downgraded its global growth forecasts, now expecting global GDP growth of 2.2% in 2023, down from 3.2% growth forecast in December or a contraction in GDP of c.$2.8 trillion. With the Russia/Ukraine crisis, higher levels of global inflation and the economic outlook downgraded, there is currently a high level of global uncertainty and volatility. The CBOE Volatility Index (VIX), a real-time measure of market uncertainty, is currently at 32.3, which is up 94% compared to the beginning of the year.
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