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BoE raises rates and ECB turns hawkish

Market update
High yield
Eurozone equities
Inflation
Interest rate
Hawkish

BoE raises rates and ECB turns hawkish

  • The BoE hikes rates by 0.25 per cent, a move widely expected by the market. The fact that the BoE narrowly avoided a 50bps hike did shock markets, pushing rate expectations higher and leading to mild GBP strength. It also caused markets to price in even more rate hikes in the US, leading to higher Treasury yields
  • The ECB dropped its previous suggestion that rate hikes were "very unlikely" in 2022, but reminded investors that it is operating in a different environment than the UK and the US so it will "not be rushed" either. An expected reassessment of inflation risks and potential changes in the timeline of asset purchases next month pushed the EUR higher, and the market is now pricing in almost 50bps of hikes this year which we think is exaggerated
  • The outlook of rates and inflation remains very uncertain in both the UK and Europe and, with this in mind, we do not think now is the time to take big gambles on the rates outlook. Instead we carefully balance our positioning between value and growth
  • In equities, we see better opportunities in the Eurozone for our value exposure, compared to UK stocks, where we have a neutral weighting. In the fixed income space, we continue to take risk in EUR and UK High Yield bonds where duration is shorter and spreads are attractive for yield seeking investors

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