Recognition of likely rise in base rates

THERE were substantial changes in 3-month LIBOR rates this week, with ultra-short sterling rates rising from 0.13438 bps to 0.196 bps.

Market Watch 26 Oct 21 (31920918)
Market Watch 26 Oct 21 (31920918)

This rise was due to a growing recognition that UK base rates will probably be increased at the next monetary policy committee meeting on 4 November.

This caused a drop in short-term government bond prices in the UK as investors were concerned that this change in direction by the Bank of England would be only the first in a series of interest rate rises, as central banks attempt to stifle current inflationary pressures.

Most equity markets reported modestly positive returns this week, with the best performance coming from the Chinese Shanghai index, which was up 2.15%. Japanese shares were the worst performers on the week, the Nikkei 225 index closing down 1.46%.

Crypto currency markets continued their strong year, with the two ‘big beasts’ of the crypto world, Bitcoin and Ethereum, both once again closing in on all-time highest prices. The momentum for this movement came largely from the launch of the first US Bitcoin futures exchange traded fund (ETF), a sign of growing regulatory acceptance of the asset class.

Ethereum prices still enjoy a close correlation with the price of Bitcoin, but are also beginning to benefit from increased investor demand for Non-Fungible Tokens (NFTs), most of which run on the Ethereum blockchain.

In the currency markets, sterling strengthened against USD$ and EUR on the back of the shift in LIBOR rates, as investors positioned portfolios to benefit from higher UK rates in the future.

In the face of accelerating global inflationary pressure, precious metals saw substantial gains over the week, gold rising by 2.43%, and silver by 5.69%.

Oil prices continued to climb, reaching their highest point for seven years, with Brent Crude for October delivery touching USD$ 86.60 intra-week.

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