In September, financial markets again paid a lot of attention to inflation figures and central banks’ reactions to them. Although oil and gas prices declined somewhat, the latest inflation figures prompted central banks to raise policy interest rates (steeply). Moreover, the message sent to the market was that more interest rate increases are on the way. This increased the likelihood and fear of recession and put pressure on share prices. The US dollar has now strengthened against the euro and is now trading below 1.
Shares
The above factors caused equity markets to fall again in September. The MSCI All Countries World Index was 7.2% lower at the end of the month compared to the previous month. Whereas this year the differences in returns between developed market and emerging market indices can be quite divergent, we see that this month’s returns are almost the same. Within emerging markets, however, the differences were significant; for example, Latin America, with a loss of only 0.7%, did significantly better than Asia (-10.9%). Europe (-6.3%) and North America (-6.9%) did not differ much, with Japan (-8.0%) lagging behind. Growth stocks performed worse (-8.1%) than value stocks (-6.3%). Among sectors, we saw that IT, telecom and real estate struggled last month with negative returns of around 10%.
Bonds
The actions and accompanying texts of central banks did not miss their effect, interest rates rose again in September. German 10-year rates rose 0.57% to 2.11%. In the US, the 10-year rate (3.69%) went up almost as fast: the increase was 0.50%. The risk aversion this month led the risk premium for less risky corporate bonds to rise less sharply than for more risky corporate bonds: 2.21% (+0.23%) and 6.13% (+0.51%) respectively.