Market Analysis Sep 2021

The decline in September was underscored by apprehensions that inflation might endure for a longer duration than initially projected. Escalating energy prices and persistent supply chain disruptions were key contributors to upward price pressures. These inflation concerns raised uncertainties about the continuation of accommodative monetary policies adopted by central banks to support economic recovery.

The turmoil caused by Evergrande, a major Chinese property developer grappling with significant debt, cast a shadow on global markets. Apprehensions arose about the potential ripple effects of Evergrande's challenges, with worries about contagion spreading to other real estate companies and even the broader financial sector. This situation heightened market volatility and increased risk aversion among investors.

In a landscape largely characterized by declines, Japanese equities stood out as an exception. The decision by Prime Minister Suga to withdraw from the upcoming elections injected a sense of optimism among investors. This move ignited hopes of more accelerated structural reforms and fiscal stimulus measures under new leadership, contributing to the positive performance of Japanese equities.

A noteworthy shift emerged in the performance of stocks during September, with value stocks outperforming growth stocks in both the European and US markets. This shift provided a partial offset to the underperformance of value stocks that had been observed since the summer's outset. This change coincided with a rising trend in bond yields, adding further complexity to the market landscape.

Central banks' actions and policy announcements played a pivotal role in shaping September's market environment. The Federal Reserve signaled its intention to commence tapering its bond purchase program, with the eventual goal of concluding the program by the middle of the next year. The European Central Bank (ECB) announced a reduction in accelerated bond purchases under its PEPP program. Notably, Norway broke new ground by becoming the first Western economy to raise interest rates since the onset of the pandemic. Additionally, a number of emerging market economies, including Brazil and Paraguay, raised interest rates in response to rising inflation pressures.

Currency and commodity markets experienced shifts during September, further contributing to the complex market dynamics. The US dollar maintained its upward trajectory, reaching levels not witnessed in over a year against the euro. This movement was influenced by the Federal Reserve's stricter stance and the prevailing uncertainty regarding the Chinese property sector. The Norwegian krone appreciated due to higher oil prices and an interest rate hike by the central bank. Meanwhile, emerging market currencies, including the Brazilian real and Turkish lira, faced downward pressure. Brent oil prices continued to climb, touching $80 per barrel, while the performance of industrial metals displayed a mixed trend. Gold prices, however, were impacted by rising bond yields and the strength of the dollar, resulting in a decline.

September's market landscape was marked by a significant shift in sentiment and performance, characterized by concerns over inflation, Evergrande's troubles, and changing dynamics in various sectors. As investors navigated this intricate environment, the interplay of economic data, central bank policies, geopolitical developments, and shifting market preferences remained at the forefront of decision-making processes. The volatility and complexities observed in September underscored the ever-evolving nature of global financial markets.