Quarterly Market Round-up
Flash Stats - Q3 2023
05 Oct 2023
In our regular market round-up, we take a look at what's happened in Q3 2023.
Global equity markets weakened and sovereign bond yields rose as markets braced for higher-for-longer interest rates being needed to return inflation to target. Credit spreads marginally tightened as expectations of outright recession receded.
Some of the headlines in the third quarter of 2023 include:
- Better-than-expected Q2 data, released in Q3, led to further upwards revisions to 2023 global growth forecasts for Q3. Survey indicators suggested that economic activity weakened in Q3, particularly in Europe, but growth is expected to slow, rather than collapse. While inflation generally declined, it remained above target, and markets are coming to expect that central banks will have to keep interest rates higher for longer to return inflation to target.
- Headline inflation is at 3.7%, 6.7%, and 5.2% year on year in the US, UK, and eurozone, respectively. Furthermore, year-on-year core CPI inflation, which excludes more volatile energy and food prices, is also substantially above central bank targets, at 4.3%, 6.2%, and 5.3%, in the US, UK and eurozone, respectively.
- The Fed and Bank of England (BoE) both raised rates 0.25% pa in Q3, to 5.5% pa and 5.25% pa, respectively, before leaving rates unchanged at their September meetings. The BoE took markets by surprise as another 0.25% pa rate hike was expected. Given a smaller cumulative increase in interest rates in this cycle, the European Central Bank raised its deposit rate twice, to 4.0% pa. While major central banks, and markets, are indicating interest rates are close to peaking, they also suggest that rates may have to remain at current, or higher, levels for longer to return inflation to target.
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