September was a volatile month for financial markets with global equities as measured by the MSCI World falling 9.3% in US dollar terms. Concerns over global growth, inflation and central bank policy continued to be the key drivers of financial market performance.
The US central bank, following on from Chairman Powell’s hawkish speech at Jackson Hole in August, increased interest rates by 0.75% to 3-3.25%. Economic growth projections were downgraded compared to its July forecasts and the closely watched Fed (Federal Reserve) dot plot pointed to further large interest rate increases and no cuts by end of next year. This increase followed a worse than expected US consumer price index print which rose 0.1% in August, above consensus estimates for a 0.1% fall. While core inflation – which strips out food and energy – rose 6.3% annually versus the prior month of 5.9% in July. So, the message from the Fed was clear. They will do ‘whatever it takes’ to control inflation even at the expense of the US economy falling into a recession – which was the first time Powell had admitted the idea of a soft landing appeared unrealistic.
Global equity markets dutifully jolted down while US two-year treasuries rose to a 15 year high of above 4%. 12 months ago, the 2 year was 0.27%.
