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Monthly Market Snapshot: September 2021

A monthly update on equity, fixed income, currency, and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (-3.5%) fell for the first time in eight months, ending September with a 13.3% gain year to date. Markets contended with pandemic uncertainty, moderating economic growth, the imminent prospect of reduced quantitative easing and policy tightening, and persistent supply-chain dislocations that have amplified the risk of more sustained inflation. Equities fell sharply after a debt crisis at one of China’s largest property developers destabilized financial markets and sparked fears about lasting damage to China’s credit conditions and its economy. An energy supply crunch is looming in Europe and Asia, as soaring prices for natural gas and coal are driving inflation higher and posing risks to the global economic recovery. Germany faces a period of political uncertainty after a victory by the Social Democratic Party in a tightly contested general election paved the way for talks to form a new coalition government. On the monetary policy front, US Federal Reserve (Fed) Chair Jerome Powell indicated that the central bank could begin scaling back asset purchases as soon as November and complete the process by mid-2022, after officials revealed a growing inclination to raise interest rates next year. The European Central Bank (ECB) kept its monetary policy unchanged but opted to slow the pace of net asset purchases under its Pandemic Emergency Purchase Programme (PEPP).

US

US equities (-4.7%) declined for the first time in eight months. Risk sentiment waned amid anxiety about the impact of persistent supply-chain disruptions on inflation and the economy, imminent policy normalization, elevated energy prices, and uncertainty about government fiscal stimulus and the federal debt ceiling. Surging Treasury yields sparked a sharp sell-off in shares of large technology companies, leading value stocks to significantly outperform their growth counterparts. The Consumer Price Index rose at a historically high 5.7% annual rate in August, although the pace of increase for the month was slower than expected, suggesting that some inflation pressures may be easing. The Fed trimmed its 2021 GDP growth forecast to 5.9%, from 7%, and delivered a clearer signal that it will begin to taper asset purchases later this year should economic conditions hold up. There was also a marked shift in its projections for future interest-rate hikes, with more members of the Fed anticipating that rates will begin to rise in 2022 amid forecasts for stronger inflation and employment. President Joe Biden signed a stopgap funding bill giving lawmakers until December 3 to devise a longer-term funding plan for the US, while markets were unnerved by clashes between Democrats and Republicans over raising the government’s debt limit. The future of a US$1.2 trillion infrastructure bill remained uncertain, with progressive Democrats threatening to vote against the bill unless the Senate agrees on a more expansive package of social initiatives, climate change measures, and tax increases.

Economic data released in September signaled moderating growth in the US economy, with persistent supply-chain disruptions prompting a wave of downgrades to third-quarter GDP growth. Following an upwardly revised gain of 1,053 million jobs in July, nonfarm payrolls increased by 235,000 in August, significantly below expectations of 733,000. The shortfall largely reflected difficulties…

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