BACK TO SQUARE ONE

The vicious trio of inflation, rising rates and recession has continued to dampen financial markets, which are having to come to terms with hawkish messages from rate-setters. September was largely negative, similar to June. So we can say it’s back to square one after the summer rally.

Yields ascended to high levels (nearly 4% on the US 10-year, nearly 2.2% on the German 10-year and 4.5% on the UK 10-year bond). The US 2/10-year spread remained tight at almost 45 basis points (bp) and is still pointing to a recession.

Against this backdrop of rising interest rates, gold continued to ebb to USD 1670 per ounce as it lost out to the US dollar.

The vicious trio of inflation, rising rates and recession last week continued to dampen financial markets, which are having to come to terms with hawkish messages from rate-setters.

Macroeconomic data from the US showed a GDP contraction in the second quarter (-0.6%), in line with expectations. The labour market remains resilient, with initial jobless claims for the week ending 24 September clocking in at 193,000 versus an expected 215,000. But US personal spending was surprisingly strong in August, rising by 0.4% versus the expected 0.2%. Personal consumer expenditures (excluding food & energy) were up 0.6% in the same month after no change in July. So no slowdown in sight on this metric.

Back in Europe, inflation accelerated more than expected in September to a new all-time high of 10%, following a 9.1% increase in August.

Economists were on average expecting 12-month inflation of 9.7% in September. Inflation excluding energy and unprocessed food – an indicator closely monitored by the ECB – rose more than expected, climbing by 6.1% versus a 5.5% increase in August and a consensus of +5.6%. These figures could encourage the ECB to continue tightening.

Amid a shift to risk-off, the S&P 500 gave up 2.91% during the week, while the tech-heavy Nasdaq, which is more sensitive to interest rate expectations, shed 2.69%.

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