The S&P 500 hit its lowest level since early June on Tuesday, still reeling from the prior week’s release of the Federal Reserve dot plot of interest rate expectations. Stocks did find some support from Friday’s release of the core personal consumption expenditure (PCE) price index, which rose by an annualised 3.9%, its lowest level in almost two years. While inflation is coming down markets are still divided over whether the Fed will action one more rate hike.
For the week the S&P 500 lost 0.7%, with utilities the biggest laggard while energy outperformed. The index logged a 4.9% decline for September, its worst monthly performance of the year and seeing its first quarterly decline of 2023. The Dow Jones was down 1.3% for the week, while the tech heavy Nasdaq posted a small gain, although both saw monthly and quarterly losses. On Wednesday the yield on the 10-year Treasury note hit 4.61%, its highest level since 2007. While it moderated on decelerating inflation data, it ended the week up at 4.57%, and saw its biggest monthly gain in a year.
European markets were also lower for the week on interest rate concerns. The pan-European STOXX 600 lost 0.7% and logged a five-day losing streak before managing to snap higher on Thursday. Support was found on signs of easing eurozone inflation, with consumer prices increasing 4.3% year-on-year in September, its slowest rate since October 2021, while core inflation also eased. Both the Italian and German 10-year government bonds had hit their highest level in a decade on Thursday after the data, before pulling back on Friday. Italian bonds were also pressured by concerns over the government deficit. The UK FTSE 100 was down around 1% for the week, although the latest data showed that the economy rebounded from the pandemic faster than initially expected.
Inflation in Tokyo also cooled, but equities followed the downward trend with the Nikkei 225 down 1.7%. Against a strengthening US dollar, the yen fell to an 11-month low and flirted close to the 150-level, which could prompt intervention into currency markets. The yield on the 10-year Japanese government bond touched a decade high. In China, while there was a lack of new economic data, the mood remained cautious around its economy. The property sector remained under strain, with trading of Evergrande shares halted. This came after the property developer had announced over the weekend that it was unable to issue new debt owing to its Hengda division being under investigation, while there was also uncertainty around the chairman being under police surveillance. For the week the Hang Seng was down 1.4%, and in a holiday-shortened week the Shanghai Composite was down 0.7% and now enters a 10-day holiday.
Latam indices also declined for the week, dampened by the China growth concerns and a generally stronger dollar. The Bank of Mexico left its overnight interest rate target at 11.25%, holding it at an all-time high for the fourth consecutive meeting. The Mexican central bank now expects inflation to return to its 3% target in the second quarter of 2025, later than a previous forecast of the fourth quarter of 2024. Brazil’s Bovespa index was one of the few that managed to eke out a weekly gain. The central bank raised its economic growth forecast for 2023, expecting growth of 2.9% compared to June’s projection of 2%. Oil exporting nations did get a boost from rising oil prices. On Wednesday Brent crude climbed above $97 a barrel, its highest level since November last year. This came after a report showing a decline in US commercial crude inventories, raising worries about tight supply. While crude pulled away from the high, for the week it added 2.2%.
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