September Markets Review

October 2010 (covering the month of September 2010)

September turned out to be a positive month for equities with US stocks leading the rally. Willingness from the US Federal Reserve to provide further monetary stimulus via quantitative easing and its commitment to reflate the US economy boosted investor confidence and risk appetite. European equities also registered healthy gains despite further reminders that the Eurozone’s fiscal crisis is far from over. Positive corporate newsflow underpinned UK stocks although economic data released here during the month added further evidence to the difficult outlook ahead. Broad weakness in the US dollar pushed the euro higher and prompted the authorities in Japan to intervene in the currency markets to weaken the yen. Commodities had a strong month with oil and gold prices rising sharply. In fixed income markets, core government bonds delivered negative returns and 10-year yield spreads for Greek, Irish and Portuguese bonds over German Bunds remain elevated.  

US

• Better-than-expected macro data dampens down fears of a double-dip recession
• S&P 500 has its best September since 1939, rising by 8.8% in US dollar terms
• Technology and industrials the best performing sectors

Europe

• Equity markets rally as corporate newsflow remains upbeat
• Spain downgraded by Moody’s while Ireland bails out the banking sector
• Euro rises to six-month high versus the US dollar

UK

• UK stocks regain positive territory for the year-to-date
• Mixed economic data suggests a challenging outlook
• Significant board room changes within the banking sector

Asia Pacific

• Japanese authorities intervene in currency markets to weaken the yen
• Japan’s second quarter GDP revised up to an annualised rate of 1.5% from initial estimate of 0.4%
• Improvement in Chinese economic data renews concerns of further tightening

Emerging Markets

• Double-digit returns for emerging market equities
• Rally driven by better economic data from US and China
• Brazil’s Petrobras raises US$70 billion in the world’s largest public share offering

Fixed Interest

• Negative returns from core government bonds and better quality investment-grade bonds, but stronger performance from high yield
• Clarity around bank capital requirements sees subordinated bank debt improve
• UK inflation remains stubbornly high