Welcome to the latest edition of our monthly market roundups. This time we’re looking at the key topics from September, from equities to monetary policy. We’ll also take a look at some of last month’s more unusual market stories. 

Inflation continues to slow

The UK headline inflation figure released in September was lower than expected, falling to 6.7% from 6.8%.

The fall in inflation was primarily caused by a decrease in restaurant prices in the month, as well as lower air fares and accommodation costs:

Financial markets and economists were surprised that prices rose less during the month of August this year than they did last year, even though petrol and diesel prices had jumped on the back of higher crude oil costs. 

Core inflation, which strips out food and energy prices, dropped from 6.9% in July to 6.2% in August:

The drop in almost all measures of inflation surprised economists and put pressure on the Bank of England to stop raising interest rates.

Interest rates stabilise

After the better than expected inflation data, the Bank of England decided to hold interest rates at 5.25% in September. It was the first pause after 14 consecutive rate rises since the start of the tightening cycle in December 2021. 

The bank’s Monetary Policy Committee was split five to four in favour of leaving rates unchanged, with governor Andrew Bailey casting the deciding vote.

Market implied expected interest rates continued to moderate over the month, thanks to the signs of easing inflation:

In the US, the Federal Reserve also decided to leave rates unchanged, voting unanimously to keep the federal funds rate between 5.25% and 5.5%. 

Equity markets fall

September was a mixed month for equities.

The UK market rose 2.4%, boosted by the pound falling to six-month lows after the Bank of England decision signalled a possible peak in borrowing costs. The local market was also buoyed by a rise in the oil price, which reached $97 a barrel, and helped the UK oil majors BP and Shell post strong returns for September. Positive industrial production and retail sales data from China not only boosted oil prices, but also helped UK mining companies Anglo American, Rio Tinto, and Glencore deliver strong returns for the month, which all contributed to the market’s strength in September. 

The US, Europe, and Emerging Markets indices all fell in local terms over September. 

In the US, which fell 4.8% in US dollar terms, the drop was led by the major technology stocks, as the market digested comments from the Federal Reserve which signalled interest rates may be staying “higher for longer” to tame inflation.   

In Europe, the ECB’s guidance that its hike to a record high of 4% would likely be its last initially lifted the market, but subsequent hawkish rhetoric from the US and further increases in the oil price erased the gains and caused the market to end the month down 1.5% in local currency terms. 

Similar concerns affected the emerging markets, which fell 2.6%. 

Sterling investors, however, were cushioned by the fall in the pound, with the US market, European market, and emerging markets finishing the month with returns of -1.2%, -0.3%, and +1% respectively in sterling terms. 

Bond yields hold steady

As short-term bond yields are closely tied to interest rates, the signs of slowing inflation in the UK caused the UK 2-year government bond (gilt) yield to fall slightly from 5.2% to 4.9%.

Longer-dated bond yields tend to be less affected by interest rate movements and are more dependent on macroeconomic factors, including economic growth and recessionary expectations. The UK 10-year gilt yield remained relatively static, unchanged from 4.4%.

The pound weakens

Versus the US dollar, sterling weakened by 3.7% in September, falling from a rate of $1.2673 at the start of the month, and finishing at a rate of $1.2199. The movement over the month was due in large part to the Bank of England’s decision to pause rates, along with their comments suggesting rates may have now peaked. 

For the same reason, the pound also weakened by 1.3% against the Euro over September, falling from a rate of €1.1688 to finish the month at €1.1538.

Off the beaten track

Now, let’s take a look at some of the more unusual market news stories from September.

Good-looking people own stocks

Using data from the Wisconsin Longitudinal Survey (WLS), which provides a photo-based measure of facial beauty, the authors of this academic study find that better-looking individuals are more likely to own stocks and invest a larger share of wealth in stocks. As anyone with a firm grasp of statistics will understand, this proves investing in stocks makes you better looking. 

Would you like to buy a volcano bond?

Well, sadly you can’t. At least, not anymore. In 2021, El Savlador had planned to issue a Bitcoin-backed, blockchain-based sovereign bond. Its aim was to raise money to build a ‘Bitcoin city’ for crypto miners, powered by geothermal energy from the nearby volcano. Strangely, the bond has now been scrapped. 

The rugby world cup is sucking up liquidity

Brokers in Australia were complaining that their key fund manager clients had headed to watch the Wallabies in France during September, which caused trading volumes to fall to about 25% less than expected. 

Couples embrace the least romantic date ever: The Money Date

This mix of romance and finance has been dubbed a “money date”. The idea is to carve out time for the sort of conversations couples often dread by making it an event to look forward to. Advisers and relationship counsellors say couples who go on regular money dates can better manage their spending, saving and investing. The perfect time to do some hedging trades.

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