Troubled September

A combination of problems overshadowed the hitherto positive economic environment and still good corporate figures: the Evergrande imbalance, supply bottlenecks, rising inflationary pressure and market participants' concerns about a possibly more restrictive monetary policy in the future.

September was a weak month for the global equity markets. The German DAX index and the broad European Stoxx Europe 600 index fell -3.63% respectively -3.41% .The losses were somewhat smaller on the other side of the Atlantic: The S&P 500 index slipped -2.81%. Hong Kong's Hang Seng Index lost -3.20%. Overall global equities as measured by the MSCI World adjusted -2.34% - all index figures in euro terms.

The headwinds on the stock markets were caused by a combination of problems that overshadowed the positive economic environment and good company figures: the difficulties of the Chinese real estate company Evergrande burdened the consumer confidence as well as the consumption and also affected the real estate and stock market in China, which has often been the target of government regulatory intervention.

Supply bottlenecks continued to affect production in the industrialized countries. Accordingly, the German ifo business climate index declined for the second time in a row falling from 99.6 to 98.8 points. The manufacturing sector in particular assessed the situation more pessimistically as incoming orders declined. Rising commodity prices - especially natural gas and electricity - are keeping up inflationary pressure. In Germany consumer prices rose 4.1% year-on-year in September and 3.4% in the euro area - the highest inflation increase since September 2008. In the US the year-on-year inflation rate (in August) was 5.3%, slightly lower than the month before.

The continuing inflation increased market participants' concerns that the US Federal Reserve (Fed) could adopt a more restrictive course sooner than expected. Fed Chairman Jerome Powell expected inflation to remain well above the Fed's target (2%) in the coming months before easing again next year. However, he still does not see a permanently elevated price level. The majority of market participants expect the Fed to cut its bond-buying program shortly and to reduce it to zero by mid-2022. The euro area, on the other hand, is expected to continue its expansionary monetary policy. Bond yields reacted to the feared change in monetary policy with rising interest rates.

10-year US Treasuries yielded 1.49%, 18 basis points higher as did their German counterparts, whose yield rose to -0.20%. Gold was unable to benefit from the rise in inflation in September. The price for the troy ounce fell from 1,815 to 1,760 US dollars. This was primarily due to the strengthening US dollar, which rose from 0.847 to 0.864.

Looking at the equity sectors only banks, automotive and energy stocks performed positively in the MSCI World Index while all other sectors posted a negative result led by utilities, construction and commodities.


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