After a volatile start to October, stock markets ended on a positive note. Developed market equities returned 7%, and although emerging market equities fell 3%, these still recovered from a more severe fall at the start of the month. However, geopolitical risks remained at the forefront of investors’ minds, with tensions between Russia and Ukraine escalating. Furthermore, leading economic indicators have shown a slowdown in developed market activity and therefore an increased risk of recession.
Equity and bond markets declined in September. This was especially the case in the UK as markets reacted very negatively to Kwasi Kwarteng’s “Mini Budget”. Sterling fell in value against all major currencies and the yield on UK Gilts markedly increased. This led to the capital value of bonds falling and concerns about future mortgage rates and the knock on effect this could have on the UK housing market.
Equity and bond markets became increasingly more volatile in August, increasing investor expectations of further interest rate rises being required to counter the high and persistent level of inflation. During August Sterling continued to weaken, particularly against the US Dollar.
Equity and bond markets staged a recovery in July as forward looking economic activity indicators weakened, allowing investors to anticipate a lower, and perhaps earlier, peak in the interest rate cycle. However, central banks’ current aggressive interest rate hikes to combat inflation, pose a danger to global economies as they may push them into recession.
Investors continued to contemplate whether inflation will remain elevated and impact upon consumers ability to spend during June. This in turn led to most equity markets having a negative month, with the exception of China, where the relaxation of Covid restrictions led to a significant positive return.
Headwinds for investors continue to remain significant. Inflation continues to rise and developed market central banks have responded by raising interest rates. The Russian invasion of Ukraine and lockdowns imposed in China have added to supply chain difficulties. These headwinds have had a negative impact on both bond and equity markets.