Selected Market Indicators for Periods to 30 September 2022

Global share markets continued their decline in September, with the S&P 500 index suffering its worst one-day sell-off since June 2020 after official data showed an unexpected monthly uptick in US inflation. To little surprise, the US Federal Reserve (‘Fed’) delivered its third consecutive 0.75% rate rise in a matter of months. Others followed suit, with the Bank of England (‘BoE’) lifting its benchmark rate by 0.5% to 2.25% - resisting pressure to match the pace set by other central banks. Japan now remains the only country in the world to retain sub-zero rates. In a month filled with aggressive interest rate hikes and dramatic currency fluctuations, pessimistic sentiment on the global economic outlook gained momentum.

Global shares had a disappointing month as macroeconomic factors continued to rock the economy. S&P 500 constituent, FedEx, issued a warning to the wider market – saying they would close offices, freeze hiring and park aircraft in response to reduced demand. The MSCI World Index was down -8.3% (in local currency), while the benchmark S&P 500 fell -9.2%.

In an environment of rapidly rising interest rates, the high dividend-paying nature of the New Zealand share market saw favour and managed to outperform its international counterparts. The NZX 50 fell -4.3% over September. Expected recessionary demand declines in commodity exports weighed on Australian markets which fell -6.2% (in local currency).

Listed Property suffered a dour month as its correlation to global share markets, as well as the impact of rising financing costs combined to drive the sector down -12.0% in September. Listed Infrastructure moved alongside Property, falling -11.0% as recessionary fears hit the sector.

Significant developments for September included:

• The pound and UK government debt sold off sharply in the wake of UK Chancellor, Kwasi Kwarteng, controversially announcing £45bn worth of tax cuts funded by large increases in borrowing. BoE Chief Economist, Huw Pill, warned that the Government’s new debt-laden plan required a “significant monetary response”, as the package threatens to stoke soaring inflation. The International Monetary Fund also launched a scathing attack on the policy, urging the government to “re-evaluate”.
• The Fed’s ability to engineer a cyclical slowdown in economic growth while avoiding a recession for the US economy took a hit after Consumer Price Index (‘CPI’) readings came in hotter-than-expected – inching up 0.1% from a month prior. Most alarmingly, core inflation (which excludes food and energy prices) rose by 0.6% for an annual increase of 6.3%. Fed official, Raphael Bostic, backed a fourth consecutive 0.75% rate rise when the Fed next meets in November.
• In a major escalation of the Russian war in Ukraine, Russian President Vladimir Putin has proclaimed the annexation of four regions in Ukraine – a move that was widely condemned by the United Nations and Western countries. Notably, the announcement means that those regions will be considered part of Russia and subject to Russia’s defence of its borders.