Concerns about persistently higher interest rates to combat inflation spooked markets once again in September, with all major exchanges suffering substantial declines. The US market fell 10% which set the trend for rest of the world with Europe down 6.8%, the UK 6.4%, Japan 8%, and China 6.3%.
UK markets experienced a bout of volatility when new Prime Minister Truss announced a raft of tax cuts to stimulate a supply side response from the British economy. With UK inflation close to 10% and the budget severely in deficit, this was interpreted as being negative for interest rates and inflation and caused a sharp sell-off in UK gilts as well as the pound. After holding up quite well last month, the Australian market declined by 6.2% but losses were contained by a resilient resource sector.
The hawkish tone from global central banks triggered a further sell-off in the bond market with US 10-year treasury yields 70 basis points higher to close at 3.83% while Australian 10-year bonds increased 22 basis points to finish at 3.89%.
Concerns about slowing world growth and a possible global recession pushed commodity prices lower with crude oil down 13.7% and iron ore 6.3% lower. As usual, the risk-off environment negatively impacted the Australian dollar which was sharply lower against a rampant US dollar finishing just under 64 US cents. This represents a decline of almost 16% from its peak 6 months ago mitigating losses sustained from offshore holdings which underlines the merits of holding foreign currency denominated assets in a multi-asset portfolio.