Our market review has increasingly become a global rates review. September was no different, as the pendulum swung between the hawks and the doves. On balance, it was a month when the hawks took charge, confidence fell and equity markets took a hit. While rates may not go much higher, in the short term, whatever happens, we are digging in for the long haul, which has spooked markets.
In September, the Bank of England followed the Fed, keeping rates on hold. However, the Fed made it clear that they were merely pausing, while the Bank of England was rather more ambiguous, although we appear to be in a holding pattern, what has been termed the Table Top mountain scenario.
More broadly in Europe, rates were increased in Sweden, Norway and by the ECB, with Lagarde keen to emphasise that rates will remain high for as long as required.
At the heart of today’s problem is inflation stubbornness. Eurozone inflation may be at a two-year low, but it is still at 4.5% and a long way from the 2.0% target. Unfortunately, it will not go away anytime soon with oil in the mid-$90s a barrel.
Life will continue to get more expensive. The underwhelming economic data also reinforces this, with little sign of a recovery boost and too many uncertainties, such as the potential US government shutdown. As for recession, no economy is out of the woods yet - Bank of America may be predicting a soft landing for the US, but for Germany and the UK, there is a long way to go before they are anywhere near such a situation.
With ten-year Treasury yields above 4.6%, markets are experiencing what John Authers terms a “gravitational downward pull.” Historically, September and October have been weak compared to other months, and September did not let the side down as world stocks maintained their longest losing streak in two years. Equity markets closed the month generally down, with tech firms weighing on indices, with Amazon, for example, down 8.1%. In this environment, the S&P 500 fell -5.0% and the Nasdaq -6.1%. The FTSE 100 was only kept in positive territory, +2.3%, with its heavy weighting to oil companies, while the Dax was down -3.5%. In Asia, the Shanghai Composite Index was marginally down, -0.3%, and the Nikkei 225 -2.3%.
Oil is certainly not helping the inflationary pains, as it approaches $100. These are all-year highs and follow weeks of consecutive gains. At the end of the month, WTI closed at $90.82, up +8.9%, and Brent at $95.3, +9.7%. This bullish price action was not reflected in the broader commodity markets, with the Bloomberg Commodity Index down -0.7% for the month.
Crypto has become surprisingly stable in recent months. September was no different, and we continue to hear further murmurs of a spot ETF approval, which, if approved, will see a further uptick in price. By close, bitcoin was up 2.6%.
GBP had an abysmal month in currencies, falling to multi-month lows against the USD and EUR. This was partly a surprise that the Bank of England was not raising rates, but also the depressed nature of UK economic data.