Please see below article received from Brooks Macdonald yesterday afternoon, which provides a succinct update on current market behaviour.
Global equities fell in September as inflationary pressures remained elevated and on further signs of a global economic slowdown. Continued anxiety about a possible bond default by Chinese property group China Evergrande also rattled markets. Major central banks, particularly the US Federal Reserve (Fed), drew closer to the point of tightening monetary policy. The news boosted the US dollar while yields on government bonds generally rose. Supply disruptions and drops in US crude stocks helped oil prices hit the highest levels in almost three years.
UK stocks declined as increasing energy costs, supply chain issues, (which led to motor fuel shortages) and worries about an economic slowdown dampened sentiment. Increasing pricing pressures – the annual inflation rate leapt to 3.2% in August from 2.0% in July – added further gloom. The Bank of England signalled that it could bring forward its plans to increase interest rates as it raised its inflation target. The UK’s second-quarter GDP growth was revised up to 5.5% from 4.8% previously, although the economy expanded by just 0.1% month on month in July.
US equities dropped on concerns about a weakening economy and moves by Democrats to raise corporate taxes. Inflation remained relatively high – consumer prices rose by 5.3% year on year in August, down slightly from 5.4% in July – further dampening the mood. The Fed turned more hawkish, with Chairman Jerome Powell hinting that the process of winding back the central bank’s asset purchases, known as ‘tapering’, could begin as early as November.
European markets were lower as worries about the economic recovery, the debt problems at Evergrande and high inflation unsettled investors. The European Central Bank said it would slow bond buying under its pandemic emergency purchasing programme over the rest of 2021. It insisted the move did not amount to tapering as it warned that the economic recovery remained nascent. The eurozone’s GDP growth over the second quarter was revised up to 2.2% from 2.0% previously.
Japanese stocks strengthened as the resignation of Prime Minister Yoshihide Suga sparked hopes that his successor would implement new fiscal stimulus measures. Former foreign minister Fumio Kishida was, by month end, expected to become the country’s new leader after winning a Liberal Democratic Party leadership contest. The continued roll-out of COVID-19 vaccinations, after a slow start compared with other developed countries, further boosted the market. Japan’s second-quarter GDP growth was revised up to 1.9%, on annualised basis, from 1.3% previously6.
Asia-Pacific equities (excluding Japan) weakened on concerns about a global economic slowdown. In China, worries about a weakening economy and Evergrande’s debt problems and power shortages (which shut a number of factories) dragged down stocks. The prospect of a slowdown in China also hurt Taiwan’s market. South Korean stocks declined as technology companies faced the threat of tightening regulations, sparking a sell-off in the economically important sector. Rises in COVID-19 infections hurt investor confidence in Australia and Singapore.
Emerging markets were down, overall, as the strengthening US dollar weighed on sentiment. India’s market remained strong, however, as the continued roll-out of COVID-19 vaccinations underpinned confidence in the economy’s recovery. Increased buying by foreign equity investors added further support. Brazilian shares fell sharply as disaffection over the leadership of President Jair Bolsonaro – and his defiance in the face of a number of scandals – increased political tensions. Russia’s market made gains as it benefitted from increases in energy commodity prices, while Turkish stocks slumped as the central bank surprised investors with an interest rate cut, despite concerns about soaring inflation. South African equities came under pressure from the stronger US dollar.
Yields on core government bond markets generally increased. The yield on US benchmark 10-year Treasuries rose (prices fell, reflecting their inverse relationship) as the Fed moved closer to tightening monetary policy, sparking a sell-off towards month end. The yields on UK 10-year gilts and German 10-year bunds also gained, although the latter remained in negative territory. In the corporate debt market, US investment-grade and high-yield spreads tightened.
We will continue to publish relevant content as we approach Halloween and edge nearer to the festive season.
Stay safe.
Chloe
20/10/2021