Markets Update – September 2023

07.09.2023

August
Global equities finished the month down just 1.3%, a 4% rally in the final week of the month, along with a 1.4% rally in the US dollar against the euro flattering what was a poor month for asset returns. Except for energy (+2.2%) and healthcare (+0.5%) all sectors were down on the month.The highlight of the month from a market-worthy news-flow perspective was the speech by Fed chair Jay Powell at the annual Jackson Hole event in Wyoming, where he continued with the narrative that the Fed can be cautious in its approach, but each meeting is live, they might need to hike again, but any idea that they are going to quickly reverse course and start cutting rates isn’t even on their radar yet. The speech had dovish and hawkish tones.On dovish side, he gave no clear commitment to delivering on the dots, arguing that while more hikes could be warranted, the Fed is fully data dependent so it could simply pause. He was balanced about the risk of further tightening vs the risk of doing too little, and highlighted uncertainty about lags meaning there could be significant further drag from the hikes that have already happened.But these are repeated dovish points. On the hawkish side, apart from repeating the need for softening labour market and below trend growth to bring inflation down in a sustainable way, he talked “uncertainty about the precise level of monetary restraint”, which is a reference to the debate about whether the neutral rate has increased, and more importantly, highlighted the risk of re-acceleration, something which is likely front and centre for Fed officials given the resilience of the economic data.