September Commentary
GLOBAL MARKETS
There were few places to hide from falling bond and equity markets
Fundamentals continue to remain weak as central banks withdraw support from markets
US MARKETS - US markets fall on Fed’s hawkish sentiments towards inflation
Main US equity markets reversed previous month’s gains on Powell’s hawkish Jackson Hole speech. Unlike his previous dovish suggestions of possible rate reversals, he hinted at a faster pace to monetary tightening in an effort to curb inflation. The S&P500 index was down 4.24% in August, a fall of 17.0% year-to-date. Markets are anticipating an interest rate increase of 0.75% at the next Federal Reserve meeting. While the more volatile items in inflation - such as gas and airfares - fell, other core components remain high.
Down -4.2% (US 500)
EUROPEAN MARKETS - Europe continues to struggle under energy-induced inflation
Consumer price inflation in the Eurozone reached 9.1% in August from a year ago, up from 8.9% in July. Energy prices, which were already high, have been pushed up even further, owing to Russia’s Gazprom announcing it will switch off gas supplies to Europe. The EU is busy finalising energy rationing policies, in an attempt to reduce energy consumption by 15%. The ECB is seen to be behind the curve with its monetary policy, having increased rates only 0.5% so far this year. It is anticipated that the ECB will raise rates by 0.75% at its next meeting.
Down -5.3% (Euro 600 Index)
UK MARKETS - Inflation and a new PM lead to uncertain times for the UK
UK CPI rose to 10.1% to July 2022, up from 9.4% in June, with household budgets bracing for another energy price cap increase in October. The FTSE 100 fell less than US and European indexes, with Small and Mid-cap indexes down 2.03% and 5.46% respectively over the period. The UK is poised for more fiscal policy uncertainty under a new PM. Along with Europe, the energy crisis from Russia’s war in Ukraine looks set to put more pressure on UK food and energy prices. Down 2.4% (UK All Share)
ASIAN MARKETS - Japan a lone bright spot amongst major equity markets
Japanese equity markets provided positive returns for the month, with the Nikkei 225 and TOPIX up in local currency terms. Japan’s economic data was relatively upbeat, with industrial production and consumer sentiment better than expected. Considering the 21% fall in value of the Yen against the US Dollar, the Yen appears to no longer be the safe haven it was once thought to be. The Bank of Japan continues to go against the grain of most Western central bankers, by purchasing bonds and equities whilst keeping rates low.
Up 1.2% (Asia Index)