2023 – Week 39
Alessandro Hor
Investment Manager | Fund Management | Compliance & AML | Capital Transactions | Asset Management | Risk Management
Markets’ overview:
Global equity markets ended September on a bit of a downbeat note. Looking at the weekly scoreboard, the #S&P500 took a slight dip of 0.74%, but the #NASDAQ managed to stay in the green, notching up a modest gain of +0.06%. Meanwhile, European and Asian markets had a tough week as well, with the #Stoxx600 posting a -0.67%. The #Nikkei was the real underdog, losing 1.65% and clinching the title of the worst performer among our regularly monitored markets. The #HangSeng didn't escape the gloom either, closing the week with a 1.45% decrease.
In the volatility arena, the #VIX made a modest jump, going from 17.20 to 17.52, marking a 1.86% increase. On the flip side, the #SKEW index took a step back to 134.5, down 2.35%.
September delivered a rather gloomy performance across the spectrum. The #S&P500 took a hit of 5.04%, the #NASDAQ fell by 5.79%, the #Stoxx600 dipped 1.73%, the #NIKKEI lost 2.60%, and the #HangSeng tumbled by 3.05%.
As I've reiterated in my weekly reports throughout August, the return of market participants to their desks in September exposed the valuations and price gains achieved over the summer to the harsh light of reality.
US
Interest rates in the U.S. are on the upswing, and Moody's has issued a stark warning that a government shutdown could deal a blow to the country's credit rating. Remarkably, Moody's is the last of the major credit rating firms still giving the U.S. that coveted "triple-A" rating.
The US Government managed to avoid the 11th shutdown in its history, passing a short-term funding bill. This has moved the risk on funding of federal agencies until November 17th.
The Conference Board's consumer confidence index took a dip from 106.1 to 103 in September, with the expectations index being the driving force behind this decline. Consumers are growing increasingly wary of the possibility of a recession hitting within the next year.
New home sales, despite falling more than expected with an 8.7% month-over-month drop, managed to maintain a 5.8% year-over-year increase. The median price of a new home saw a slight 1.5% dip, settling at $430,300. On a brighter note, the S&P Case-Shiller home price index hit a new all-time high, rising 0.9% month-over-month and 0.1% year-over-year.
The Federal Reserve's preferred gauge of inflation, the core personal consumption expenditures price index (PCE), only edged up by 0.1% month-over-month in August, marking its smallest monthly increase since November 2020 and bringing the year-over-year reading to 3.9%. The headline PCE, on the other hand, climbed by 0.4% month-over-month and 3.5% year-over-year, largely due to a significant uptick in energy prices.
Consumer spending saw a modest 0.4% month-over-month increase, down from the robust 0.9% surge in July. Personal incomes also rose by 0.4%, but the savings rate dropped for the third consecutive month, settling at 3.9%.
The final reading of second-quarter GDP growth remained unchanged at 2.1%, but there was a downward revision in consumer spending from 1.7% to 0.8%. Initial jobless claims remained relatively subdued, with Chicago Fed President Austan Goolsbee cautioning against overemphasizing the idea that substantial job losses are necessary to curb inflation, as this might lead the Fed to hike rates excessively.
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Europe
In Germany, the annual change in the Consumer Price Index (CPI), a measure of inflation, took a step back, coming in at 4.5% for September. This figure represents a decrease from August's 6.1%. The flash estimate from Destatis revealed this result, which was just slightly below the market's anticipation of 4.6%. Looking at the month-to-month perspective, the CPI increased by 0.3%, in line with both market expectations and August's growth.
Meanwhile, the annual Harmonised Index of Consumer Prices (HICP), which is the European Central Bank's preferred measure of inflation, experienced a significant drop to 4.3% from its previous reading of 6.4% for the same period. In the Eurozone, the downward trend in inflation persists, reaching its lowest point in a span of two years. Core inflation moved from 5.3% to 4.5% in September, reinforcing the European Central Bank's confidence that interest rates are sufficiently elevated to help attain a 2% inflation target by 2025. This decline aligns with the overarching economic slowdown currently affecting the region.
China
The debt restructuring struggles continue for Chinese property developer Evergrande. Its shares plummeted after missing payments on $547 million in onshore bonds and delaying a debt restructuring meeting. Evergrande suspending trading again after its chairman was put under police?surveillance.
China's manufacturing sector displayed resilience in September, marking the second consecutive month of expansion. This growth came despite a somewhat lackluster job market and a continued decrease in export orders, as revealed in a survey sponsored by Caixin.
The Caixin China General Manufacturing Purchasing Managers' Index (PMI), offering an independent glimpse into the sector, edged down to 50.6 in September from its previous reading of 51. A PMI figure above 50 signifies an expansion in activity, while a reading below 50 signals a contraction. This suggests that while the pace of expansion eased slightly, the sector remains in growth mode.
Definition
Caixin Purchasing Managers' Index
The Caixin Purchasing Managers' Index (PMI) is a widely recognized economic indicator that measures the health and performance of China's manufacturing sector. It provides a numeric representation of whether the sector is expanding or contracting. A PMI reading above 50 indicates expansion, while a reading below 50 suggests contraction. Caixin's PMI is considered an important gauge of economic activity and is published by Caixin Media in collaboration with research firm Markit.
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