In a world where the financial markets resemble a never-ending rollercoaster ride, September brought us to the edge of our seats.
It was like binge-watching a suspenseful drama series, with the S&P 500 taking a jaw-dropping 5% dip – the kind of drop that makes even seasoned investors feel like startled characters in a thriller. Not to be outdone, the bonds market had its weakest performance since February.
Who’s the culprit? All thanks to the Federal Reserve’s decision to keep monetary conditions tighter than post-Thanksgiving jeans.
As October made its grand entrance, it wasn’t with fireworks but a bang, and not the kind you’d want to celebrate. Yields on 30-year US Treasuries shot up to 4.97%, a figure last seen when Facebook hit 500 million users in 2010, and no one knew how much bigger it would become. Meanwhile, 10-year Treasuries reached 4.80%, the first time since people still marveled at the iPhone’s novelty back in 2007.
But when it came to inflation, there was no mercy in September.
The Consumer Price Index (CPI) decided to give us all a fright by climbing 0.4%, largely due to energy costs. Core inflation which excludes food and energy, should probably have a cameo in the Marvel Cinematic Universe but doesn’t, decided to join the party with a 0.3% increase. Annual headline inflation remained stubborn at 3.7%, and core inflation climbed to 4.1%. The guilty party? Shelter costs, which make up a whopping third of the total CPI, surged like ticket prices of a hotel room near a Taylor Swift concert.
The labor market continued to outpace expectations, with September’s nonfarm payrolls surging by 336K, exceeding estimates by over 90%. This was further bolstered by revisions adding 119K jobs for July and August. However, the household employment survey painted a weaker picture, with an increase of only 86K, versus 222K in August. The unemployment rate played it cool at 3.8%. But keep an eye on that ominous 4.0% mark – it’s like the suspenseful music in a thriller, as it could signal the start of a recession, according to the Sahm Rule. The report even dropped hints of financial tightening and a rather gloomy October payroll report.
In a nutshell, the global economy is tiptoeing on the edge of a slowdown. Central banks are chanting the same old tune about keeping interest rates high. With persistent inflation and the labor market’s unexpected twists, the chance of another Fed rate hike by year-end has soared. And just when you thought the plot couldn’t get more intense, rising oil prices and Middle East conflicts are here to keep us guessing. U.S. Treasury Secretary Janet Yellen is our guide in this economic thriller, assuring us of a soft landing. But as any fan of suspense knows, the real excitement lies in how this story unfolds.
Sources:
- Bloomberg Economics
- Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
- Bureau of Labor Statistics, https://www.bls.gov/news.release/ppi.nr0.htm
- Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
- Reuters
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