In September US markets continued to slide as inflation remained resilient. Even though inflation ticked lower for the second time – from 9,1% in June to 8,5% in July to 8,3% in August – core inflation (which excludes food and energy prices) picked up pace again. After declining each month since April core inflation increased from 5,9% in July to 6,3% in August. As a result the Federal Reserve once again reiterated its commitment to continue raising the interest rate for as long as needed to bring inflation down. In September the FED raised the interest rate for the third time by 0,75 basis points to 3,25%.

GDP data confirmed that the US economy is in a technical recession with GDP falling by -0.6% year over year in Q2 after a -1.6% contraction in Q1. However, other data showed resilience, particularly in the labour market.

Also the 10-year treasury yield rallied from 3,20% to 3,83% pushing bonds and shares lower throughout the month. The S&P500 index dropped 9,34%, Dow Jones 8,83% and Nasdaq 10,50%, the worst monthly performances since the COVID correction in March 2020. Meanwhile the dollar gained 2,57% against the Euro, breaking parity to close at 0,9799 USD/EUR.

Also Eurozone shares fell in September with the DAX, Eurostoxx and CAC40 dropping 5,61%, 5,66% and 5,92% respectively. The Slovene SBITOP index suffered a massive drop of 14,78%, dropping below EUR 1000 for the first time since April 2021 to close at 963,07. With a combined weight of about 35% in the index, Petrol and NLB were leading the loss.

After raising the interest rate by 0,50 basis points to 0,50% in July, the European Central Bank once again raised it in September, this time by an unprecedented 0,75 basis points to 1,25%. Annual inflation for the eurozone came in at 10,0% in September, up from 9,1% in August and above the expected 9,7%. As the Russia/Ukraine conflict continues, energy shortages in Europe remain a grave concern with the winter season just a few months ahead.

The Japanese stock market did overall better during the third quarter, with the Nikkei index dropping only 4,92%, and that loss took entirely place in September with a 7,67% drop. The Japanese Yen on the other hand has been on a steady decline throughout the year. With 2,2% GDP growth and 3,0% inflation, the Bank of Japan leaves policy unchanged, this in contrast with the western central banks. The depreciation of the Yen caused the Ministry of Finance to intervene directly in currency markets when the yen was seen depreciating rapidly intra-day, towards 146 against the US dollar. This was the first such direct intervention in support of the yen since 1998.

In Asia (ex-Japan) China was the weakest market in the quarter despite data which showed that Chinese factory activity unexpectedly expanded during August. The alarming spread of Covid-19 throughout China also weakened sentiment, prompting fears of further lockdowns as the country continues to pursue a policy of zero-Covid. The Hong Kong Hang Seng index dropped 13,69% in September.
 

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - September 2022