Published: Sat 7th Oct 2017
Read Time: 8 minutes
Global Markets Update - September
The S&P 500 performed well in September, gaining 1.73% in the face of natural disasters and geopolitical tensions. After Trump’s announcement at the end of the month, to slash the corporate tax rate to 20%, stocks performed strongly and the dollar strengthened.
Surprisingly, the VIX index that measures volatility, recorded its lowest reading in 50-years – despite threats of military action from North Korea and the increasing rhetoric from both countries. Lower volatility could be partly down to hurricanes Harvey and Irma having a lesser impact on the US than initially feared. The hurricanes did have a significant impact on GDP growth, as forecasters have revised down estimates for real GDP growth in the quarter to 1.77%, down from 2.53% earlier in the month.
Shares in Apple fell 6% over the month, following the release of its iPhone 8. Initial sales were weaker than expected, and investors felt that sales expectations are unrealistic.
UK equities had a poor month with the FTSE 100 index falling by 0.88%, and the general FTSE 350 index losing 0.66%. The FTSE 100 fell by over 2% in the middle of the month, partly due to greater economic uncertainty. Mark Carney had hinted that interest rates will rise as early as November, as opposed to the end of 2018 – as it was previously thought. This comes as inflation is set to peak at over 3%, higher than the central bank initially predicted.
Airlines have dominated the headlines this month, with Ryanair now facing legal action from the Civil Aviation Authority, after announcing a second wave of cancellations over the winter period – affecting 400,000 people. The Boeing-Bombardier dispute has continued in the month, with the USA now threatening to impose 220% tariffs on Bombardier C-Series jets after Boeing complained of unfair subsidies from the UK and Canadian governments to Bombardier. This is a move that is likely to cost up to 4,000 jobs in Northern Ireland.
European equites performed particularly strongly in the month, the DAX index rose by a remarkable 5.65% in September and the CAC 40 rose by over 4%. This comes as the European Central Bank raised the Eurozone’s growth outlook to 2.2%, the fastest growth in a decade. Investors have confidence that EU growth is based on strong fundamentals, with an increase in exports, consumption and now investment, which is why the markets have responded so positively.
The German election was a pivotal event in the month. Angela Merkel’s Christian Union party received its lowest share of the vote since 1949, and the Alternative for Germany became the third largest party in the Bundestag. Merkel’s now weakened coalition, coupled with the tension resulting from Catalonia’s independence referendum, has led to a fall in the Euro in September.
In Japan, the Nikkei 225 rose by 3.38% in September. Shinzo Abe, who had faced his lowest approval earlier in the summer, after accusations of nepotism, has seen his ratings rise after his handling of the situation in North Korea – who have flown missiles over Japanese land. His confidence led him to announce a snap election on 25th September. He also announced a fresh 2tn Yen stimulus package, for education and social spending.
Emerging Markets Equities
From the 21st to the 26th, Emerging Markets suffered from a torrid week, losing 2.5% on the MSCI Index due to confidence about US interest rates rising in November. This resulted in an investor movement from emerging equities to US equities. However, EM equities performed well in the rest of the month, due to strong global growth.
Alternatives, Commodities, Cryptocurrency
Bitcoin experienced a turbulent September, losing 12.8%. J.P. Morgan CEO, James Dimon, labelled it as a currency fit for drug dealers, which may have long term ramifications in swaying the public’s opinion on cryptocurrencies. A few days later, Chinese Authorities announced a ban on ICO’s (initial coin offerings) and shut down some exchanges. However, this will only limit some trading in China and is unlikely to be a precursor to crackdowns in other regions. In such a volatile market and considering the bad news, Bitcoin actually held it’s own quite well during September. Ethereum fared less well, losing 32% of its value.
Gold was down 3.25% in September, and Silver fell 6%. Gold had a strong August due to economic uncertainty and increasing tensions in North Korea, as investors looked for safer investments. However, since Janet Yellen’s comments about needing to tighten up US monetary policy, interest rates are now expected to rise in December. This would strengthen the dollar, and as a result, the price of gold has fallen. Chinese demand for gold has also been weak.
Crude oil prices have increased 7.6%. This is due to Turkey’s president (Erdogan) threatening to turn off an Iraqi pipeline, and the OPEC agreement (from last November) to cut supply being more significant than forecasters thought. This decrease in supply, coupled with strong demand from economic growth, has led to crude oil reaching a two year high this month.
In other news, London real estate prices fell for the first time in 8 years.