Rising oil prices reignited inflation fears in September, pushing bond yields higher and weighing on equities as investors reassessed the outlook for interest rates.
UK
- UK inflation rose to 3.1% in August (July 2.9%), with rising petrol prices being the largest contributor. This increases the likelihood of a September rate hike.
- The UK Composite PMI (indicator of business activity, >50 is expansionary and <50 is contraction) fell to 51.7, still expansionary but down from 52.5 in August.
- UK equities had a disappointing month, dropping -2.0%.Financials and pharmaceuticals lagged, which are main components of the index.
- UK unemployment remained stable at 4.9%.Vacancies have dropped for eight consecutive quarters.
- The Bank of England held interest rates at 3.75%, noting they are prepared to hike if high energy prices are sustained. The split was 6 hold votes to 3 hike votes.
Global
- Global equities added +0.9%. Strengthening USD contributed to strong global returns in GBP terms, thanks to a tighter Fed policy supporting the currency.
- US equities gained +1.7%. The index performed due to large-cap tech/AI performance, highlighted by the equal-weighted index dropping -2.4%.
- The Fed raised US interest rates 25bps to 3.75-4%. This was the first hike since 2023 and was a unanimous decision amongst voters. BoJ and ECB also hiked.
- Japanese equities gained +3.4%. A strengthening yen versus GBP and USD amplified the strong performance from technology and semi-conductor names.
- EM equities added +0.2%. There was clear separation between regions – AI related countries (Taiwan and South Korea) performed strongly whilst oil-dependent (China and India) fell sharply.
- In Europe, equities fell -2.8%. A rising oil price harmed the industrials and manufacturing heavy index, whilst French political instability impacted sentiment.
Fixed Interest
- Global government bonds fell -1.6%. Rising global yields were fuelled by the renewed surge in oil prices which is expected to impact inflation prints.
- UK Gilts dropped -1.2%. Despite holding rates, the BoE highlighted concerns regarding the path of inflation and are prepared to act. 10yr Gilt closed at 5.44%.
- US Treasuries fell -2.1%. This was the largest monthly 10yr yield movement since 2022. 10yr Treasuries closed at 5.29%.
- Fiscal concerns increase for heavily indebted government balance sheets as borrowing costs rise, particularly in the US, where debt has surpassed $40trn.
- Among corporates, investment grade and high yield both saw losses, with investment grade yields rising more than high yield. Hyperscalers, which are investment grade issuers, have raised $200bn of debt so far this year.
Other
- Sterling fell marginally against the greenback, where GBP/USD ended at $1.33. GBP/EUR was flat and ended at €1.17.
- Oil prices advanced +11.3%, closing at $98/bbl. Prices had closed at high as $107 intra-month as Saudi Arabia’s East-West pipeline was targeted.
- Gold fell -7.6%, closing at $4,187. The non-yielding alternative asset tends to underperform when global bond yields rise, as happened during month.
Sources: Morningstar, Financial Times, Investing.com
Would you like a second opinion on your investment performance? Get in touch by calling 03300 564 446, or use our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
