A better quarter in store?

It was a challenging month for markets as investors fretted about the ‘higher for longer’ message from many central bankers. The RBNZ had the month off meeting-wise, but the Federal Reserve, Bank of England, Reserve Bank of Australia, Bank of Canada and Bank of Switzerland were amongst those that left rates alone but warned that they might need to stay there for some time. The European Central Bank meanwhile opted to put through a 10th consecutive rate hike.

Against this backdrop, bond yields rose across the globe, led by the 10-year US Treasury, which hit the highest level since 2007. Concerns over the stickiness of inflation were not helped by a surging oil price which hit US$95 a barrel at one point, gaining more than 30% since June.

Global stock markets weakened as a result. The S&P500 declined 4.8% during the month and by 3.7% over the quarter. The Nasdaq Composite was off 5.8% in September and lost 4.1% for the quarter (but is still up 27% year to date). The NZX50 eased 2.2% during the month, for a 5.2% decline over the quarter. The ASX200 was down 2.8% in September but was down a lessor 2.2% for the quarter.

Bond yields have remained a headwind to sentiment in the early days of this month, but have inflation numbers on both sides of the Atlantic perhaps brought some cause for optimism that “higher for longer” may not be a fait accompli? Late last week inflation in the Eurozone fell to its lowest level in nearly two years. US inflation also came in lower than expected, providing some comfort for central bank officials considering whether they have reached the end of the rate tightening road.