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Markets had a pretty weak performance in September that included declines in both bonds and equities maintaining its reputation as the worst month of the year for markets. That came amidst jitters over the troubled Chinese conglomerate Evergrande, rising energy prices and hence inflationary pressures, as well as a hawkish turn from multiple central banks. Looking at the third quarter as a whole was much more positive however, and it’s worth noting that a number of fears about Covid and new variants at the start of the quarter didn’t materialise, with no major new variants emerging since delta. In fact, the virus has taken a back seat of late.
In terms of asset classes, the main story in September was a big rise in energy prices with the West Texas Intermediate (WTI) and Brent oil prices advancing by 9.5 per cent and 7.6 per cent, respectively. On a year to date basis, oil prices have advanced by over 50 per cent, by far among the best performing asset so far this year. Alongside this came an astonishing surge in natural gas prices, which had a big impact in Europe in particular. Indeed, European natural gas prices are up 94.2 per cent over the last month, and 182.4 per cent over the third quarter as a whole.
The surge in energy meant that commodities as a whole continued to perform strongly through September, with the Bloomberg Commodity Spot Index up 4.9 per cent last month and 6.2 per cent in the third quarter. That means the index has now risen for 6 consecutive quarters, with its last decline being in the third quarter of 2020 when the COVID-19 pandemic began to spread. That said, one segment that has struggled over the month has been precious metals, with higher sovereign bond yields dampening demand for zero interest haven assets. In fact, silver was one of the worst performing commodities on a monthly, quarterly and year to date basis, having now fallen by 16 per cent since the start of the year. Gold is also down since the start of the year, but has somewhat limited losses thus far to 7.4 per cent.
US Treasuries are down 1.2 per cent over the last month, which is their worst monthly performance since February, and 10-year yields rose 17.9 basis points since the start of the month. This follows the announcement by the Federal Reserve during the month that it will soon begin to slow the pace of its asset purchases, with purchases set to come to an end by around the middle of next year. The Fed also released its projections for interest rates over the next few years, with the central expectation now being for US interest rates to increase to 1.75 per cent by the end of 2024. The European Central Bank also announced a reduction in the pace of its asset purchases, but in contrast to the Fed, was keen to stress that this was not the beginning of a process of tapering purchases down to zero. Nonetheless, sovereign bond prices in the continent followed the US lower, with German bunds down 1.4 per cent and Italian BTPs down 0.8 per cent.
The other main news from the eurozone was the result of the German election. While the outcome means that it could take some time for a government to be formed and the replacement for Chancellor Angela Merkel to be named, the result does suggest that the eventual outcome is now unlikely to be a game-changer for German or European markets, with neither the far left or far right parties likely to be involved in the government.
Turning to equities, we’ve seen the major indices falling back for the first time since January, bringing a consistent run of seven consecutive monthly increases to an end. The S&P 500 was down 4.7 per cent on a total return basis, while the Stoxx 600 fell 3.3 per cent. However, over the third quarter as a whole, the S&P 500 was still up 0.6 per cent, whilst the Stoxx 600 rose by 1.0 per cent. In terms of the sectoral moves, tech stocks underperformed in September, with the Nasdaq down 5.3 per cent, though banks benefited from higher yields, with the S&P 500 financials only down 1.8 per cent, as the Stoxx 600 Banks rose 4.0 per cent. It is also worth noting that aside from oil, equities are one of the best asset class performers year to date, with the S&P 500 still 15.9 per cent higher over the year as a whole, even with last month’s declines.
Turning to foreign exchange, September marked a good month for the dollar, with the index ending the month up 1.7 per cent, having risen 4.8 per cent on a year to date basis. Sterling was a major underperformer, however, falling 2.0 per cent against the dollar as the UK grappled with a number of shortages. UK assets struggled more broadly, with gilts underperforming other sovereign bonds to lose 3.9 per cent, which came after the September Bank of England decision raised the prospect of higher rates sooner than markets were expecting. Nevertheless, sterling’s depreciation supported the FTSE 100, which managed to only lose 0.2 per cent on a total return basis.
Clearly, winter brings with it some uncertainty in relation to Covid’s potential impact on health systems but even if hospitalisations do start to pick up again, the economic recovery is more likely to be delayed rather than derailed, thanks to still very healthy savings balances that consumers have accumulated. These elevated savings, along with solid wage growth, should also help most consumers to weather the increase in prices currently underway.
Disclaimer: This article was written by Stephen Borg, Head of Private Clients at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.
For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly, any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views, or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views, or opinions appearing on this website.
Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act.
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