Introduction

September 2023 brought renewed market turbulence as investors contended with surging bond yields, hawkish central banks, and lingering global growth concerns. Risk assets struggled, with equities declining across most regions and bond markets repricing for a longer stretch of elevated interest rates. Despite progress on inflation, policymakers doubled down on their commitment to price stability, leading to a broad tightening of financial conditions. Currency volatility also picked up, especially across emerging markets and Asia.

United States

U.S. equity markets retreated in September, with the S&P 500 falling 4.9% and the Nasdaq Composite dropping 5.8% - the worst monthly performance since December 2022. Rising Treasury yields and a hawkish Federal Reserve weighed on investor sentiment, particularly in interest-rate sensitive sectors like real estate and technology.

At the September FOMC meeting, the Federal Reserve held rates steady at 5.25%–5.50% but projected one more rate hike before year-end and fewer rate cuts in 2024. The dot plot suggested a higher-for-longer policy stance, reinforcing the Fed's commitment to its 2% inflation target. Meanwhile, the August CPI showed inflation rising slightly to 3.7% year-on-year, driven largely by energy costs, while core inflation eased to 4.3%.

Europe

European markets also declined amid weak growth data and tighter financial conditions. The Euro Stoxx 50 dropped 2.8%, while Germany's DAX fell 3.5% as manufacturing PMI and consumer sentiment continued to deteriorate. Eurozone GDP estimates were revised lower, adding to stagflation fears.

The European Central Bank raised interest rates by 25 basis points, bringing the deposit rate to a record-high 4.0%. ECB President Christine Lagarde signalled that this may be the final hike of the cycle but reiterated that rates would remain at restrictive levels “for as long as necessary.” Inflation in the eurozone eased slightly to 4.3%, but core inflation remained above 5%.

Asia-Pacific

Asian markets were mixed in September. China's markets stabilised somewhat, with the Shanghai Composite gaining 0.3%, while the Hang Seng Index remained flat. Beijing introduced additional measures to support the property sector, including lower mortgage rates and relaxed down payment requirements. Economic data showed modest improvement, though concerns around youth unemployment and capital flight persisted.

Japan's Nikkei 225 fell 2.3% as the Bank of Japan maintained its ultra-dovish stance despite mounting inflation pressure. The yen weakened further, prompting speculation about FX intervention. In Australia, the ASX 200 declined 3.4%, with broad-based weakness across sectors. The Reserve Bank of Australia held rates steady at 4.10% but maintained a tightening bias.

Emerging Markets

Emerging markets faced increased headwinds in September, with the MSCI Emerging Markets Index down 2.8%. Higher U.S. yields and dollar strength triggered outflows from EM assets and pressured currencies. Bond markets in particular saw renewed volatility, especially in countries with large external debt profiles.

India continued to outperform, with the Nifty 50 rising 2.0% on strong economic data, robust domestic flows, and optimism around structural reforms. Brazil and Mexico saw modest declines, while Turkey's central bank hiked rates by 500 basis points to combat surging inflation, stabilising its currency temporarily.

Commodities

Oil prices surged in September, with Brent crude topping USD 95/barrel by month-end, the highest level since November 2022. The rally was driven by extended production cuts from Saudi Arabia and Russia, coupled with lower U.S. inventory levels and resilient demand expectations.

Gold prices declined, finishing the month near USD 1,865/oz as rising real yields and dollar strength offset safe-haven demand. Copper and other industrial metals saw limited movement, with mixed signals from Chinese manufacturing and global construction activity.

Fixed Income & Currencies

Bond markets experienced significant repricing. The U.S. 10-year Treasury yield rose sharply, ending September near 4.58% - a 16-year high. Global fixed income markets adjusted to the Fed's updated policy outlook, with the yield curve steepening and real rates climbing.

The U.S. dollar continued to strengthen, driven by rate differentials and risk aversion. The euro and yen weakened, while the Chinese yuan remained under pressure despite intervention efforts. The Singapore dollar held relatively steady, supported by MAS policy consistency and capital inflows seeking regional stability.

Outlook

With central banks entering the later stages of their hiking cycles but remaining hawkish, markets are likely to remain volatile through year-end. Economic divergences between the U.S., Europe, and Asia continue to shape investment narratives, and the lagged effects of monetary tightening are expected to become more visible in Q4.

Brightness Capital & Asset Advisory maintains a cautiously defensive positioning with selective risk exposure. We favour quality companies with strong cash flows, short-duration fixed income, and real assets tied to energy and infrastructure. We remain closely attuned to global liquidity shifts, earnings resilience, and regional divergences as the global economy enters a more mature phase of the cycle.