Global markets remained highly volatile in September as rising interest rates, high inflation and further uncertainty surrounding the Russia-Ukraine conflict continued to push equity valuations lower. The MSCI World Net TR index, which measures the returns on global developed equities, slid 8.31% in local currency terms, making it the worst month for global stocks since the Covid-induced crash in March 2020.
In the UK, newly appointed Chancellor Kwasi Kwarteng delivered his ‘mini-budget’ to the House of Commons. Among the announcements were a vast array of tax cuts, including lowering the basic rate of income tax to 19%, reversing the National Insurance rise and scrapping the planned corporation tax rise. A further measure, namely the scrapping of the additional 45% income tax rate, has since been reversed. Markets reacted unfavourably to the Budget, with gilt prices plummeting to the extent that the Bank of England stepped in and announced some emergency gilt buying. The pound also weakened in the days following the Budget, at one point reaching an all-time low of $1.0373 early last Monday morning before bouncing back to end the month just below $1.12.
Full round-up of September market performance
In the UK, the FTSE 100 index declined 5.16% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, fell 10.74% and 8.50%. In the US, the S&P 500 USD index lost 9.21% while in Europe the Eurostoxx 50 EUR index dropped 5.54%. Japanese stocks measured by the Topix JPY index declined 5.49%.
Emerging markets returns were also negative, with the MSCI Emerging Markets index falling 9.33% in local currency terms. Indian stocks measured by the Nifty 50 INR index slipped 3.74% while Chinese equities measured by the MSCI China local index plunged 14.07%. Latin American equities, measured by the MSCI Latin America local currency index, ended the month flat.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, dropped 8.04%, with long dated (over 15 years to maturity) gilts sinking 11.14%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, conceded 8.75%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index fell 6.69%.
There were mixed returns in the commodities market. The S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, declined 7.80%. Crude oil futures dropped 11.23% during the month. In the agricultural markets, corn and wheat futures delivered 0.56% and 13.91% in USD respectively. In the precious metals markets, the S&P GSCI Gold and Silver indices returned -2.89% and 6.74% in USD respectively.
In the currency markets, the pound depreciated 3.89% against the US dollar and 1.48% versus the euro but it picked up 0.06% versus the yen.