During the month of September central banks took centre stage with their “higher for longer” message for interest rates leading to a wobble across financial markets.
Global equities, as measured by the MSCI World, finished down 4.3%, while global bonds, as measured by the Bloomberg Global aggregate index, also falling 2.9% for the month.
In the US, Fed (Federal Reserve) chairman Jay Powell kept interest rates unchanged at 5.25%-5.5%. However, his forward guidance was clear “any relief from high borrowing costs will be neither swift nor generous.” Meaning that the resilience of the US economy might require further rate adjustments. Furthermore, the Fed dot plot projections – a survey of the 19 policymakers of future interest rate projections – pointed to a median estimate of 5-5.25% for year-end 2024. A significantly higher prediction to the 4.5-4.75% dot plot median in June.
US macro data was mixed with August annual headline consumer price inflation (CPI) rising to 3.7% from 3.2% in July due to higher energy prices. While the closely watched core CPI which strips out food and energy trended down to 4.7% from 4.3% in July with shelter costs still stubbornly high.
US jobs growth continues to be softer with non-farm payrolls adding 180,000 jobs for the previous month and the growth numbers for August and July were also revised down. While the unemployment rate edged higher to 3.8% and wage inflation remained elevated at 4.3%.
Furthermore, leading indicators of growth such as the manufacturing purchasing manager’s index remain below the 50-level indicating contraction for the US economy may lie ahead.
Digesting the trend of data over the last few months would suggest the probability of a soft landing in the US from a recessionary viewpoint has increased. However, the lagged effects of higher interest rates are perhaps yet to be felt.
In the UK, the Bank of England avoided raising interest rates for the 15th consecutive time keeping deposit rates unchanged at 5.25%. An unexpected fall in inflation to 6.7% in August couple with a cooling jobs market were the key contributors for no change. Additionally, the UK house prices fell for the fifth month in a row down 4.6% in August.
Chinese growth remains a concern. The property market continues to falter with Country Garden – one of the country’s largest real estate companies – just avoiding default on payments. The sector accounts for nearly a quarter of economic growth for the second largest economy in the world. Consumption remains subdued and youth unemployment so high that the government have cancelled publication of the data.
