Gathering clouds

Global Market Review

Questions over growth

Investor sentiment during September was a hostage to concerns over faltering economic growth, rising inflation, surging energy prices, and an increasingly hawkish tone from central banks, compounded by speculation that Chinese real estate giant Evergrande might be on the verge of collapse.

Tapering moves closer in the US

The Federal Reserve (Fed) appears to be moving closer to unwinding its programme of asset purchases; central bank officials are preparing to initiate a “gradual tapering process”, and a growing proportion anticipate that the key federal funds rate will increase in 2022. The yield on the benchmark US Treasury bond hit 1.55% during September, reaching its highest level since June.

Inflation remains a headache

The annualised rate of inflation in the US eased from 5.4% to 5.3% in August, but the Fed believes that “transitory” pressures will push the rate of consumer price inflation as high as 4.2% in 2021, moderating to 2.2% next year. Expectations for economic growth this year were downgraded from 7% to 5.9% this year but upgraded from 3.3% to 3.8% for 2022. The Dow Jones Industrial Average Index fell by 4.3%.


The European Central Bank (ECB) revealed that it would reduce the scale of its Pandemic Emergency Purchase Programme (PEPP) but sought to reassure financial markets by stating that purchases would continue until at least March 2022. However, ECB President Christine Lagarde insisted that the central bank was “recalibrating” rather than tapering, stating: “The lady isn’t tapering … we are not out of the woods”. Over September, the Dax Index fell by 3.6%.

All change in Germany

After 16 years with Angela Merkel in charge, Germany went to the polls during September in a federal election that will determine her successor. As expected, the vote resulted in a coalition government; discussions will continue until an agreement has been thrashed out.

… and all change in Japan

Investors were surprised by the news that Prime Minister Yoshihide Suga intended to stand down after only a year in the role; Fumio Kishida will replace Mr Suga as leader of the Liberal Democratic Party (LDP). Japan’s economy grew more strongly than originally calculated during the second quarter, expanding by 1.9% year on year rather than the earlier estimation of 1.3%. Growth was underpinned by robust business spending. The Nikkei 225 Index rose by 4.9% over September.