The equities market continued their decline in September, with MSCI World Index down 4.3%*. However, the fund outperformed index as it was down 2.6%. Energy was the only sector in the green as oil prices surged after Saudi Arabia and Russia cut production of 1.3m barrels per day as they try to push prices towards $100 per barrel. OPEC (Organisation of the Petroleum Exporting Countries) also announced that in the next quarter the market is facing a deficit of more than 3m barrels per day which could result in supply shortages. However, with countries transitioning to renewable energy, the impact of this shortage should be less than what we saw over a decade ago.
We’ve seen U.S. government bond yields increase to their highest levels in over a decade, with the 10-year U.S. Treasury yield increasing from 4.17% to 4.58% and the 2-year Treasury yields increasing from 4.87% to 5.05% by end of the month. The U.S. unemployment rate increased from 3.5% in July to 3.8% in August. U.S. inflation increased by 0.6% in August compared to the previous month and core inflation (this excludes energy and food prices) was up 0.3% month-on-month. The Fed left rates unchanged but warned that there could still be one more hike we could see before end of the year. For the Eurozone, inflation came in higher than market expectation; this saw the ECB (European Central Bank) increasing the interest rate for the 10th time in 14 months to a record high of 4%. The ECB implied that rate hikes are mostly probably at end and that interest rates have reached levels that “will make a substantial contribution to the timely return of inflation to the target," and this is now expected to be at a slower rate than what was previously stated. In China deflation pressure eased with inflation increasing by 0.1% in August compared to the previous year while core inflation remained flat at 0.8%.
There’s a focus now on how long rates will be high for and with the headwinds the global economy is facing such as oil prices increasing which impacts inflation numbers and puts pressure on consumer spending, it’s important to remain data dependent.