Summary
Global equities declined in September while the US 10-year Treasury yield closed the month at its highest level since 2007. Global growth has held up stronger than expected over the past quarter. There is still upside for US equities in the near term if US economic data continues to surprise positively.
Market update
Equities: Global equities declined in September, with sentiment remaining under pressure following a weak August. Developed markets broadly underperformed on a USD basis, with the US market being one of the worst performers. The US 10-year Treasury yield closed the month at its highest level since 2007. Higher yields weighed on technology and growth stocks - globally, value stocks outperformed growth stocks. Within Asia and Emerging Markets, rising oil prices supported the energy sector and selected countries while ASEAN markets mildly underperformed. Improved macro data helped support the China market. India strongly outperformed broader EM on news that the country’s GDP grew at its fastest pace in a year during the most recent quarter.
Fixed Income : The Fed kept rates on hold during September, but signalled a further hike later in the year, whilst also suggesting that rates will remain higher for longer. In the fixed income markets, global yields generally rose; yields across the US Treasury curve rose across most key maturities, with the 10-year and 30-year leading the way with increases of 50 bps and 53 bps, respectively.
Macro overview
Growth: Global growth has held up stronger than expected over the past quarter, supported by the services sector and resilient consumer spending. However, the Services New Orders Index recently trended below the ’50-mark’, an important threshold separating expansion from contraction, reflecting the lagged impacts of tighter monetary policy on the overall sector. The Manufacturing New Orders Index rebounded but remained in contraction phase. Positive momentum in the global economic environment is slowing overall, albeit gradually, while consensus expectations of a ‘soft landing’ is growing.
Inflation: Inflation pressures have eased dramatically over the past few months, particularly in the G10 economies. However, a discernible downtrend in wage inflation, a key structural driver of core inflation, is needed for core inflation to move meaningfully lower, and for policymakers to be comfortable about meeting their price stability objective. Overall, we expect the trend, momentum, and direction of travel for inflation to head lower.
Monetary Policy: The Fed held rates steady recently, but should growth and labour market data continue to surprise on the upside, an additional rate hike may be on the cards. Our Multi Asset Portfolio Solutions team expects the cumulative effects of the Fed’s rate hikes to eventually kick-in and slow the labour market. This will drive the Fed to steady its rate hikes gradually.
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