Please see below article received from Brooks Macdonald this morning, which provides a market update and refers to economic developments in the UK, the US and Europe.
What has happened
Equity markets failed to buck the trend of recent days, closing lower yesterday. A small loss in the US index disguises huge intraday volatility where positive US economic data was seen as emboldening the Federal Reserve in raising rates faster and further. The US index closed at its lowest level since November 2020, a sharp reversal after the optimism seen over the summer.
UK
The UK Gilt market remained a hotspot for the global bond selloff with the UK 10-year yield at 4.5% for the first time since the global financial crisis. The ongoing UK bond market rout caught the attention of the IMF yesterday, that cautioned the UK to reconsider its fiscal position and said that it would be closely monitoring the UK bond market for signs of stress. A public declaration that the IMF was actively engaging with UK authorities did little to boost confidence causing sterling to fall again versus the US dollar after a short period of stabilisation. All eyes are now looking at the Bank of England to find out when, and by how much, the Bank will raise rates. The Bank’s Chief Economist said yesterday that the fiscal event will require ‘a significant monetary response’ whilst also suggesting that the November meeting would be used for such a move, effectively suggesting an intra-meeting hike was not the preferred route. Given the recent volatility there is a degree to which the Bank of England will need to respond to events so markets are yet to fully rule out such a possibility.
European energy
Adding to the risk off feeling yesterday, multiple countries suggested that the recent leaks from the Nord Stream pipelines may be due to sabotage. Given the difficulty in defending such long pipelines, markets quickly extrapolated the impact of this occurring to other pipelines causing natural gas futures to surge. Furthermore, suggestions that Moscow could sanction Ukraine’s Naftogaz creates further questions over European energy supply.
What does Brooks Macdonald think
Given the range of bad news that markets could focus on, it seems counterintuitive that some strong US economic news could lead to a downturn in US equity indices. At the moment markets are constantly reassessing the need and ability for central banks to raise rates. Europe and the US both need to raise rates but the US is fairly unique in seeming to have significant relative capacity to raise rates given the more buoyant economy. Better US data suggests an economy that can absorb additional tightening, leading to higher rate expectations and further US dollar strength.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | -0.1% | 0.4% | -1.7% | -4.7% | |
| MSCI UK GBP | -0.6% | -2.8% | -5.8% | -0.2% | |
| MSCI USA GBP | -0.1% | 0.8% | -1.1% | -3.4% | |
| MSCI EMU GBP | -0.8% | -1.8% | -2.7% | -16.8% | |
| MSCI AC Asia ex Japan GBP | 0.3% | 0.6% | -2.1% | -6.2% | |
| MSCI Japan GBP | 0.2% | 1.6% | -1.8% | -5.3% | |
| MSCI Emerging Markets GBP | 0.4% | 0.5% | -2.3% | -6.0% | |
| Bloomberg Sterling Gilts GBP | -3.2% | -10.9% | -16.9% | -31.6% | |
| Bloomberg Sterling Corps GBP | -2.4% | -8.5% | -12.7% | -26.2% | |
| WTI Oil GBP | 2.4% | -0.9% | -7.1% | 32.3% | |
| Dollar per Sterling | 0.4% | -5.7% | -8.6% | -20.7% | |
| Euro per Sterling | 0.6% | -2.0% | -5.1% | -5.9% | |
| MSCI PIMFA Income | -0.9% | -3.6% | -6.4% | -11.6% | |
| MSCI PIMFA Balanced | -0.8% | -3.3% | -6.1% | -10.6% | |
| MSCI PIMFA Growth | -0.4% | -1.9% | -4.3% | -7.3% | |
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World USD | -0.1% | -5.8% | -10.7% | -24.8% | |
| MSCI UK USD | -0.6% | -8.9% | -14.4% | -21.3% | |
| MSCI USA USD | -0.2% | -5.5% | -10.1% | -23.8% | |
| MSCI EMU USD | -0.8% | -7.9% | -11.6% | -34.4% | |
| MSCI AC Asia ex Japan USD | 0.2% | -5.7% | -11.1% | -26.0% | |
| MSCI Japan USD | 0.2% | -4.7% | -10.8% | -25.3% | |
| MSCI Emerging Markets USD | 0.4% | -5.7% | -11.2% | -25.9% | |
| Bloomberg Sterling Gilts USD | -3.3% | -15.9% | -24.1% | -45.6% | |
| Bloomberg Sterling Corps USD | -2.5% | -13.6% | -20.2% | -41.3% | |
| WTI Oil USD | 2.3% | -7.0% | -15.6% | 4.4% | |
| Dollar per Sterling | 0.4% | -5.7% | -8.6% | -20.7% | |
| Euro per Sterling | 0.6% | -2.0% | -5.1% | -5.9% | |
| MSCI PIMFA Income USD | -1.0% | -9.6% | -15.0% | -30.3% | |
| MSCI PIMFA Balanced USD | -0.9% | -9.3% | -14.7% | -29.5% | |
| MSCI PIMFA Growth USD | -0.5% | -8.0% | -13.1% | -26.9% |
Bloomberg as at 28/09/2022. TR denotes Net Total Return
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Chloe
28/09/2022