Blair Campbell, MitonOptimal International (Guernsey)Global risk assets were widely in negative territory over the month as a myriad of concerns manifested themselves further in September causing selling pressure to escalate and leaving investors with few places to hide.  A recognition that inflation expectations were perhaps not so transient brought forward expectations of the raising of interest rates while continued supply chain disruptions and the broadening energy crisis amplified concerns.  Emerging markets marginally outperformed their developed counterparts, the MSCI Emerging Markets Index returning -4.0% versus the MSCI’s developed market gauge return of -4.1%, both on a total return basis in USD.

Though somewhat softer, with a composite reading of 55.0 (>50 indicates expansion), the Purchasing Managers’ Index (PMI) data for September indicated the US economy is still experiencing robust growth, albeit the slowest in a year.  Jobs data was mixed, though the Federal Open Market Committee (FOMC) suggested that a tapering of the central bank’s asset purchasing programme beginning in November.  Meanwhile, inflation projections were upgraded and FOMC members’ interest rate forecasts were marginally brought forward.  Against this backdrop the S&P 500 fell -4.7%, while the growth-orientated and technology-biased NASDAQ Composite fell -5.1% as a sharp rise in Treasury yields over the course of the month prompted a comparative (versus value) sell-off in growth companies.

In Europe, the European Central Bank announced that it would reduce the pace of asset purchases under its pandemic emergency programme, whilst monetary policy would remain unchanged.  Numerous countries within the Eurozone reported multi-year highs in inflation data, as record energy prices threatened to impact upon an already slowing growth environment.  The latest composite PMI data indicated regional growth is slowing with a reading of 56.2 marking the slowest growth in the private sector for five months, as companies report shortages of inputs impeding both the services and manufacturing sectors of the economy. The region’s stock market was down -3.7% in September, as measured by the MSCI Europe ex-UK index.

Employment data suggests the UK economy remains resilient with the unemployment rate falling to 4.6% compared to the 4.0% prior to the pandemic whilst job vacancies are approaching record highs.  Nevertheless, retail sales declined as companies are reporting labour shortages and supply chain disturbances caused by Coronavirus factors, BREXIT considerations and input shortages amongst others.  The UK market performed relatively better than its global peers, returning -1.0% as measured by the FTSE All Share Index in local currency terms.

Inflationary pressures, rising interest rate expectations and the prospect of central banks’ tapering their stimulus programmes caused core government bond yields to spike over the month, with the benchmark 10-year yields for Treasuries, Gilts and Bunds rising 18bps, 31bps and 18bps to 1.49%, 1.02% and -0.20% respectively.  Corporate credit also sold off, particularly Investment Grade whose lower yield acted as a head wind, whereas high yield returns were more mixed.

Source of all data: Bloomberg. The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.


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