THE GLOBAL ECONOMY IN SEPTEMBER

September was a busy month for markets with a plethora of policy reviews, conferences and data releases. Two events towards the end of the month became the highlights and focus of the preceding weeks; the US Federal Reserve’s policy review on the 21st and the OPEC meeting in Algiers held from 26-28th. On the run up to the Fed policy review investors and traders were slightly risk averse, selling riskier assets in Emerging Markets and in mid-September there were concerns that  the EM rally may be ending, as investors indulged in profit taking prior to the policy review. But some analysts remained confident the rally will continue  and were proven right as the month ended positively for Emerging Market equities, with the Fed’s decision to postpone its rate hike leading to gains. However, given comments made by the US Fed’s Chairwoman Janet Yellen, markets now factor in an above even chance for a Fed rate hike in December.

US and Asia Pacific markets were affected by concerns about the financial health of Deutsch Bank after US authorities slapped a $14 billion fine for wrongdoings in the pre-2008 mortgage market. The concerns have subsided on reports the bank is working on reducing the magnitude of the fine. The uncertainty over the tightening US Presidential elections continued to haunt markets over the month. The first Presidential debate saw Hillary Clinton taking the edge, but the polls keep forecasting a tight race between Clinton and Trump and increasing popularity for alternative candidate Gary Johnson. Global markets, especially EMs, are on edge about the increasing possibility of a Trump presidency.

The October 2nd announcement by British Prime Minister Theresa May to officially trigger Brexit by March 2017  renewed concerns over Brexit as the Pound dropped to its lowest since 1985. She also mentioned no special favors will be granted to the financial sector during exit talks with the EU, increasing angst about the future of London as a financial center.

The other highlight of the month was the OPEC meeting where major oil producing nations agreed to a production cut for the first time in eight years. Oil prices reached the $50 mark for the first time since August following the announcement. Saudi Arabia proved to have made a major policy shift when it allowed Iran, Nigeria and Libya to remain pretty much uncommitted to production cuts. Thus, Iran is seen as the big winner from the agreement. Yet, analysts continue to doubt the ability of the cuts being adhered to and a comprehensive agreement is to be made in November.

 

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