Monthly Market Roundup cov. September 2023

European equity markets ended the month down as they faced headwinds from slowing eurozone GDP. The energy sector thrived due to rising oil prices, favouring value over growth[2]. Communication services and financials performed well, while technology and consumer discretionary sectors lagged.

The European Central Bank (ECB) raised interest rates but signalled a potential pause amid weaker growth and cooling labour markets. Inflation eased, likely helping to keep interest rates stable.

The European Commission revised down growth forecasts due to industrial decline, slowing trade, inflation, and rising borrowing costs. Although flash purchasing managers’ composite index (PMI)[3] showed a slight improvement, it remained below 50, indicating business contraction and ongoing economic challenges in the eurozone.

UK equity markets ended the month higher, boosted by better-than-expected economic data. UK inflation slowed to 6.7% in August, defying forecasts of a rise, driven by falling food prices and reduced air fares and accommodation costs.

The Bank of England (BoE) held interest rates at 5.25%, ending a 14-month streak of hikes. Revised data from the Office for National Statistics showed a robust post-pandemic recovery, with UK GDP surpassing pre-pandemic levels.

UK wages grew at their fastest pace since 2001, outpacing inflation. Consumer confidence rose, reaching its highest level since January 2022, driven by strong wage growth and easing inflation.

US markets ended September down, with the major indices (Nasdaq, S&P, Dow Jones) seeing negative returns amid concerns of persistent high-interest rates.

The US Federal Reserve (Fed) held interest rates at 5.50% as expected but hinted at more rate hikes this year and fewer cuts next year, emphasizing a "higher for longer" stance due to inflation risks despite a strong labour market.

A potential government shutdown was averted by a US Senate funding deal through to mid-November. US economic data showed mixed signals, with labour market resilience but a contracting manufacturing sector and an expanding services sector.

There were mixed fortunes for Asian equity markets in September, ending the month down overall. Thailand, South Korea, Taiwan, and Indonesia posted losses, while India and the Philippines posted positive returns.

Chinese markets were overshadowed by concerns in the real estate sector, notably Evergrande's troubles. Despite positive economic indicators such as retail sales and industrial production exceeding expectations, US Federal Reserve's hawkish¹ signals influenced sentiment.

Japan's equity markets, while slightly negative, outperformed regional peers, with steady consumer price growth fuelling debates on its monetary policy. In India, positive gains were driven by lower-than-expected headline inflation and increased exports and imports in dollar terms.

September was a better month for emerging markets equities, as they outperformed global equities, though ended the month down overall. Regional performance was mixed.

Asia experienced sharp declines, notably in Thailand, South Korea, Taiwan, and Indonesia, while India finished positively. Chinese markets grappled with Evergrande's woes but exceeded expectations in retail sales, industrial production, and reduced unemployment.

Latin American equity markets declined overall, with Brazil and Colombia gaining, while Chile and Peru lagged. Brazil's equities struggled, leading to a central bank interest rate cut as inflation slightly missed expectations.

In Europe, the Middle East, and Africa, markets declined, with Saudi Arabia, South Africa, Hungary, and Poland facing challenges, while Turkey, Egypt, and the United Arab Emirates (UAE) showed slight gains. Turkey's inflation surpassed forecasts, prompting a central bank interest rate hike as expected.

Expectations of prolonged higher interest rates weighed on bond markets in September. This caused government bonds to lose ground as yields rose. US treasuries, German bunds and UK gilts all posted negative returns.

The Federal Open Market Committee (FOMC) maintained the US fed funds rate but revised its dot plot chart (a chart that summarises the FOMC’s outlook on short-term interest rates) eliminating two anticipated interest rate cuts for 2024. The Bank of England voted 5-4 to hold interest rates at 5.25%, possibly signalling a peak in borrowing costs. The European Central Bank raised its key rate to 4% but suggested it might be the last increase.

Corporate bonds saw mixed performance, with high yield outperforming investment grade bonds. US high-quality bonds and Euro investment grade bonds weakened, while Sterling Corporate bonds gained.