September and early October provided some of the most challenging market conditions for equity investors, with policy uncertainty meaning the chances of a pivot in interest rate tightening remain slim for now.
More pain inflicted on the markets
September proved another challenging month for financial markets. The trigger for a further sell-off in bonds and equities was August's inflation numbers in the United States. Although the headline figure fell to 8.3 per cent, it was a smaller drop than the market expected. Core inflation remains worryingly high, something that persisted in last week’s September numbers. The Federal Reserve followed this up with another 0.75 per cent increase in interest rates at its September meeting. It is expected to raise rates by a further 0.75 per cent at its next meeting. In the UK, the Bank of England, against expectations that it would follow suit with a 0.75 per cent increase, only increased rates by 0.5 per cent. That came a day before the new chancellor (but now ex) Kwasi Kwarteng, released his 'fiscal event'. Foreign exchange markets, which were already perplexed by the Bank of England's inadequate rate rise, punished sterling, which fell against the euro and US dollar. At its low, it traded at 1.03 to the US$, below the 1.05 achieved in 1985. It wasn't all about dollar strength – the pace of the sell-off was self-inflicted.