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In September, confidence visibly took a hit. This was mainly due to the recurring interest rate hikes. And Vladimir Putin's attempts to annex four Ukrainian regions. Both the stock, bond, currency, and commodity markets experienced a period of heavy volatility. Which may indicate panic selling.
Furthermore, the Federal Reserve (FED) of the United States raised the interest rate by 0.75 percentage point to 3.00% - 3.25%. The FED expects to continue raising the rate to a level of 4.50% to 4.75% next year. Bond yields in the US, UK, and Germany rose to a record high for this decade.
The budget plan of the new government of the United Kingdom caused additional concern. Primarily due to hefty proposed tax cuts for businesses and high earners. Resulting in a surprising action by the Bank of England (BoE) - to maintain order in the UK bond market - by buying government bonds and thus suppressing rising prices.
Shares in emerging markets underperformed in September, as pressure is being exerted on their expected economic growth. This pressure comes from their own falling currencies and the interest rate hikes in developed countries.
Best fund performance in September 2022: UBS (Lux) Money Market Sustainable Fund -0.02%
Shares in developed countries had a difficult month due to interest rate hikes and increasing tension. The S&P 500 ended the month down 9.35%. The largest monthly (percentage) drop this year.
The FED meeting concretely resulted in two developments. On the one hand, a new interest rate hike in the US of 0.75% (to 3.00% - 3.25%). On the other hand, the indication of more rate increases in 2023. The Federal Reserve again emphasised that curbing inflation is the highest priority for the United States' central banks. Even if this has a negative influence on the markets in the short term.
Shares in Europe followed their American counterparts. The Stoxx 600 index recorded a loss of 6.6% over the course of the month. In the United Kingdom, the new government's budget plan caused extra tension. Which even led to action by the Bank of England to maintain order in the UK bond market.
For Europe, there was a bright spot in September. The falling price of crude oil (minus ~10%) and gas (minus ~20%) gave Europeans - who are suffering from rising inflation - some breathing room.
Shares in emerging markets performed worse because growth forecasts faltered due to a strong US dollar and fear of a recession. In addition, China remained a major concern for investors worldwide, as their zero-Covid policy continuously causes growth problems. India, which seemed immune to the global market downturn in recent months, proved to be affected by the reduced market confidence during the month.
The US and European 10-year yields rose sharply, to the highest level of this decade, with 67 basis points in the US and 57 basis points in Germany. Thanks to the persistence of global central banks in fighting inflation by implementing interest rate hikes. High-yield bonds and corporate bonds also recorded negative returns, -2.09% and -3.58%, with an increasing risk premium during the month due to the growing risk of a recession and rising prices. After the ECB (European Central Bank) meeting in October, the money market yield is expected to rise to a level of 1.5% in the following month.
- The quarterly results of companies are crucially important to reduce the fear of a recession in the market.
- The outcome of the ECB meeting which may lead to new interest rate hikes.
- Ukraine's fight to reclaim the territories conquered by Russia will dominate the news flow.
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