A volatile quarter ends noisily
September was another busy month, ending a third quarter of wildly oscillating investor sentiment and whipsawing asset prices. Equity markets witnessed some violent gyrations during the quarter, as different sectors and styles vied for market leadership, whilst bond markets steadily powered ahead, fuelled by interest rate cuts and a general increase in risk aversion. This split in the performance of riskier and safer assets was also starkly evident within the commodity sector, where ‘safe haven’ gold moved up another +4.5% over the summer, whilst the oil price fell -7.5%, despite the removal of 5% of world capacity by a drone attack in Saudi Arabia. The root cause of these movements can be traced back to the ebb and flow of worries over the global economy, which has been slowing down for some time (but not stopping). Central banks and many governments have responded to this sluggishness with multiple interest rate cuts and increased spending in an effort to ensure that this slowdown in activity doesn’t morph into a more dangerous contraction. Despite the aggressive moves in the past there is still considerable room for these measures to accelerate again if needed. China, Europe and many Emerging Market nations have considerable capacity to increase government spending and there is also clearly further scope for cutting interest rates in the USA and UK.
“Despite the aggressive moves in the past there is still considerable room for these measures to accelerate again if needed”
On its own we would usually think that these combined actions (and potential actions) would be enough to underpin a much more optimistic outlook than there currently is, but the unfortunate reality is that the geopolitical situation is too volatile and complicated to allow that to happen. Ongoing geopolitical squabbling has fed directly into the highest ever level of confusion over economic policy, sapping corporate confidence and fuelling market volatility.