Global Equity Decline Wraps Up Difficult September, US Labor Report May Show Some Loosening
Last Week Review
Global equities declined 0.9%, with stocks in U.S., ex-U.S. and emerging markets falling. The two-year Treasury yield fell 0.07% while longer-term yields continued to rise with the 10-year yield up 0.14%. Credit spreads modestly widened.
Bond and Stock Losses in September
Global equities declined 4.1% in September, led by a 4.8% loss in the U.S. Investment grade bonds lost 2.5% as the Treasury curve steepened on expectations that the Federal Reserve will keep rates higher for longer. High yield bonds fell 1.2% with modest credit spread widening. Among real assets, natural resources performed the best, a 0.4% loss, with help from higher oil prices while listed infrastructure and global real estate declined 4% to 6%, pressured by higher interest rates.
U.S. Government Shutdown Avoided
Congress came up with a surprise stopgap budget measure over the weekend to avoid a government shutdown before the fiscal year ended on Saturday. U.S. House of Representatives Speaker Kevin McCarthy reversed course on a bipartisan bill he initially had rejected last week. The agreement keeps the U.S. government funded for six more weeks at current spending levels. Shutdown risks could resurface around mid-November.
U.S., European Inflation Show Signs of Easing
Higher energy prices drove up the August U.S. Personal Consumption Expenditures Price Index 3.5% year-over-year from 3.4% in July, but the 0.4% rise month-over-month was softer than expected. The core index, which excludes more volatile energy and food prices, declined to 3.9% year-over-year from 4.3% and the 0.1% rise month-to-month was less than expected. The preliminary reading for Europe’s Consumer Price Index indicated that inflation’s grip may be easing there as well. Europe’s flash Consumer Price Index rose 4.3% year-over-year while core inflation rose 4.5%, below expectations and notably lower from prior levels. The late-week inflation releases provided some relief to rising global bond yields, especially in Europe.
This Week Preview
U.S. Labor Market May Show Some Signs of Loosening
The September U.S. employment report, scheduled for Friday, may underscore ongoing labor market tightness with the potential for loosening at the margin. The pace of hiring is expected to slow to 165,000 from 187,000 in August and the unemployment rate is projected to decline to 3.7% from 3.8%. Wage growth is expected to be unchanged from the prior level of 4.3%. The strong labor market has supported the economy challenged by higher gas prices, labor strikes, the resumption of student debt payments, government shutdown risk and tighter monetary policy.
Fed’s Powell, ECB’s Lagarde to Speak This Week
Several major monetary policymakers are scheduled to speak throughout this week, including Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde. Investors will likely monitor whether they attempt to tamp down the recent rise in bond yields, though Powell opted not to in a speech just last week.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of October 1, 2023.
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