After a strong first half of 2023 markets closed September and the third quarter overall in negative territory. Government bonds also declined in the quarter, with yields rising. Commodities were a notable outperformer with energy gaining amid oil production cuts from Saudi Arabia and Russia. 

The Dow Jones, S&P500 and Nasdaq Composite dropped 3,49%, 4,87% and 5,81% respectively in September and 2,61%, 3,65% and 4,12% over the whole third quarter. Investors entered the quarter optimistic that the era of increasing rates would soon end, but FED policy makers continue to hint at least one more increase before year-end. During the meeting in September they however kept it unchanged at 5,50%. Inflation, while ticking up in August, remains on a downward trend with core inflation dropping from 4,7% to 4,3% annually. Overall inflation (which includes food and energy) gained for a second month, climbing from 3,2% to 3,7% in August.

Overall, the US labour market remains very strong. However the unemployment rate rose by 0,3 percentage point to 3,8% in August. The number of unemployed persons increased by 514,000 to 6,4 million, suggesting a further softening of the labor market.

Also European markets dropped in September amid worries over the negative effects of interest rate rises on economic growth. The DAX, Eurostoxx and CAC40 indices lost 3,51%, 2,85% and 2,48% respectively over the month to close the third quarter with 4,71%, 5,10% and 3,58% losses. The Slovene SBITop was one of the few positive performers with a 1,53% gain in September after a major drop in august following the floods in Slovenia. Over the quarter the SBITOP dropped 4,73% after a 17,52% gain during the first half of the year.

However, data released at the very end of the period showed eurozone inflation slowed to a two-year low of 4,3%, down from 5,2% in August. This could potentially pave the way for the European Central Bank to put an end to interest rate increases. Meanwhile the dollar continued to appreciate against the Euro, closing the month at 1,057$/EUR.

UK's FTSE index was an exception in that it managed to squeeze out a modest gain both during the month (+2,27%) and quarter (1,02%). The large energy and basic materials companies outperformed as they rebounded from weakness in the previous three-month period. They benefited from sterling weakness against a strong dollar. A sharp recovery in crude oil prices boosted energy stocks in particular.

Hong Kong shares were also lower in the third quarter, with trading of shares in embattled Chinese property company Evergrande suspended in Hong Kong in September following sharp price falls. The Hang Seng index closed September with a 3,11% loss and the quarter with a 5,85% loss. With a 4,37% loss in the first half of the year, it is one of the worst performing markets so far this year.

Meanwhile oil continued to gain, closing at 90,79 dollars per barrel, up another 8,56%. Precious metals on the other hand made a correction in September on the strong dollar and higher bond yields.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports 2023