Monthly Market Review – April 2022

A look back at markets in April, which saw a shift in interest rate expectations with markets now expecting faster rate rises.


The month in summary:

Equity markets saw further falls in April. Global shares were hit by the ongoing war in Ukraine, lockdowns in China, continued supply chain disruptions, and expectations that US interest rates could rise swiftly. US shares were sharply lower after disappointing updates from some previously fast-growing companies. Bond yields continued to rise (meaning prices moved lower) as markets anticipated significant interest rate hikes.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities fell sharply in April. Economic data showed signs of weakening while inflationary pressures continued to prompt the Federal Reserve (Fed) into a more aggressive path of interest rate hikes. Several high-profile US tech firms were notably weaker on supply-chain concerns and lacklustre results.

Inflation – as measured by headline CPI – increased 1.2% over the month of March, a sharp pick-up from February. This took the annual rate of inflation to 8.5% from 7.9%, its highest since December 1981. Higher fuel prices contributed significantly to the elevated number.

The Fed signalled a 50 basis point hike would take place in May in a step up in the central bank’s inflationary countermeasures. Meanwhile, industrial activity was broadly weaker, consumer confidence down, and initial data showed a contraction of GDP in Q1.

Weakness was widespread. Consumer staples were more resilient, while most other sectors declined. Consumer discretionary companies, unsurprisingly given the damage to consumer confidence, were amongst the weakest over the month. Car manufacturers were especially hard-hit. Communication services also declined. Netflix, notably, fell sharply after its net loss of subscribers in Q1, the first quarterly decline in users since 2007.  

Eurozone

April saw further declines for eurozone equities as the war in Ukraine continued and there was no let up in inflationary pressures. Annual eurozone inflation reached 7.5% in April, up from 7.4% in March. Russia halted gas supplies to Poland and Bulgaria after the two countries refused to comply with a decree from Russia that payment must be made in roubles.

The best performing sectors included energy, amid ongoing strong demand, and communication services, where telecoms stocks fared well given their defensive profile. Information technology, consumer discretionary and industrials were the weakest sectors. Companies in these sectors tend to be among the most affected by supply chain disruptions and concerns over consumer confidence.  

The eurozone economy grew by 0.2% quarter-on-quarter on Q1 and the unemployment rate dipped in February to 6.8%, from 6.9% in January. Forward-looking indicators painted a mixed picture: the services purchasing managers index (PMI) hit an eight-month high amid an upturn in tourism, but manufacturing PMI reached a 22-month low. (The PMI indices, produced by IHS Markit, are based on survey data from companies in the manufacturing and services sectors.)

As expected, Emmanuel Macron won the French presidential election.

UK

April was another marginally positive month for UK equities. The FTSE 100 index remains one of the few key national benchmarks in positive territory for 2022 in the year to date (local currency terms).

Typically defensive groups provided most of the impetus for the market, notably the pharmaceutical and the consumer staple sectors. Many of these companies are also big dollar earners and received additional support from the strength of the US currency, especially versus a weak sterling. Dollar strength also benefited the energy companies while utilities were in demand given their expected resilience to stagflation, being the combination of slowing growth and accelerating inflation.  

Sterling performed poorly amid fears around the domestic economic outlook. Official data showed the UK economy slowed more sharply than expected in February, when monthly GDP rose by 0.1%, from 0.8% in January. Meanwhile, the annual rate of UK consumer inflation climbed to 7.0% in March from 6.2% in February (consumer price index), its highest since March 1992.

The same fears around the domestic outlook also weighed on domestically focused sectors and UK small and mid-cap equities underperformed as a result. Consumer-facing companies in particular struggled in the face of cost of living concerns, which have raised questions around the ability of some companies to pass on their own rising costs.

Japan

After initial weakness, the Japanese stock market drifted sideways to end April 2.4% lower. The yen again weakened sharply against the US dollar in April, breaching the 130 level for the first time in 20 years.

Aside from the ongoing human tragedy unfolding in Ukraine, Japan’s equity market in April was primarily driven by news flow on monetary policy and currency markets. Comments from the US Federal Reserve pointed to a widening interest rate differential with Japan materialising earlier than expected. This view was reinforced by the results of the Bank of Japan’s (BoJ) own policy meeting on 18 April, confirming no change in policy and the maintenance of the existing target of +/– 25bps for the 10-year bond yield.

However, there was some surprise in the degree of commitment to this target shown by BoJ Governor Kuroda. Until the last two months these operations had been extremely rare, and generally only deployed at specific moments of significant market stress. However, Mr Kuroda stated that these fixed-rate operations will be conducted every day throughout May, virtually guaranteeing no rise in bond yields, which quickly pushed the yen down though the psychological 130 level against the US dollar.

On the corporate front, corporate results announcements began in late April for the fiscal year ended in March. The bulk of companies, however, will report in May, after the Golden Week holiday period.

Asia (ex Japan)

Asia ex Japan equities were lower in April as China struggled to contain its worst outbreak of Covid-19. This prompted fears that the subsequent economic stoppages could have a wider impact on the global economy and exacerbate the global supply chain shortages. Shanghai, China’s largest city and home to almost 25 million people, has been in lockdown since the end of March when cases of the Omicron variant started spiking.

Expectations of higher interest rates and the ongoing Russian invasion of Ukraine also weakened investor sentiment during a volatile trading month.

Taiwan was the worst-performing index market during April, with major electronics manufacturers and chip makers slumping due to supply chain disruptions amid the lockdowns in Shanghai and neighbouring cities. Share prices were also sharply lower in the Philippines, South Korea and Singapore in April, while share price declines in China and Hong Kong were less muted.

Indonesia was the only market in the index to end the month in positive territory after ratings agency S&P upgraded the country’s outlook to stable from negative, citing the improvement in Indonesia’s fiscal position.

Emerging markets

Emerging market (EM) equities were firmly down in April, amid a pick-up in risk aversion globally. Increasingly hawkish sentiment from the US Federal Reserve, US dollar strength, concern over the impact of Covid lockdowns in China, and Russia’s ongoing war in Ukraine all weighed on the outlook. Poland, which saw its gas supply from Russia cut off, was the weakest market in the index, while neighbouring Hungary also lagged.

Industrial metals sold off amid increased uncertainty over the demand outlook from China, which was negative for net exporters Peru, Brazil and South Arica. In Peru, protests in response to soaring food and energy inflation, also weighed on the outlook. Mexico underperformed as the cyclical outlook deteriorated and policy concerns returned, while a weaker outlook for global trade was negative for Taiwan and South Korea.

By contrast, Turkey generated a positive return and was the best-performing index market. Net energy exporters Saudi Arabia, Qatar and Kuwait also finished in positive territory. China outperformed but posted a negative return as concern over the growth outlook increased and lockdowns implied supply chain disruption may be prolonged. This was despite some modest monetary easing during the month.

Global Bonds 

Bond yields continued to rise in April, resulting in further negative returns (yields and prices move in opposite directions), amid continued high inflation and expectations of significant interest rate hikes.

Investors continued to weigh up the uncertainty of the war in Ukraine and the resulting disruption to supply chains. Concerns over the global growth outlook have begun to mount too, with China maintaining stringent lockdowns to tackle Covid-19. 

US consumer price inflation accelerated to 8.5% year-on-year in March though the core personal consumption expenditure index fell marginally to an annualised 5.2%, from 5.3%.

The Fed maintained a hawkish stance. Policy minutes indicated it is considering a relatively quick reduction in its balance sheet. Later in the month, Fed Chair Jay Powell signalled a potential 0.5% rate increase in May.

The US 10-year Treasury yield increased from 2.35% to 2.94% and the two-year from 2.33% to 2.73%. The two to 10-year yield curve (two-year minus 10-year yield) inverted briefly early in the month.

The UK 10-year yield rose from 1.61% to 1.91% and the two-year increased from 1.36% to 1.61%. Bank of England (BoE) Governor Andrew Bailey acknowledged UK policymakers are walking a “tightrope” between inflation and the danger of the shock to household incomes that higher interest rates could represent.

In Europe, the German 10-year yield rose from 0.55% to 0.94% and the Italian 10-year yield rose from 2.04% to 2.77%. Europe saw continued surging inflation and speculation around monetary tightening. European Central Bank President Christine Lagarde repeated the message that asset purchases will end early in Q3 and rates could rise this year, but the governing council will maintain “optionality”.

Corporate bonds saw negative total returns and underperformed government bonds. High yield saw the more significant spread widening though spreads remained below the highs seen earlier this year. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade).

Emerging market (EM) bonds saw negative returns too, particularly sovereign debt, while corporate credit was more resilient. EM currencies weakened as the US dollar performed strongly, particularly in Latin America and central and eastern Europe. The Chinese yuan also declined notably. 

Convertible bonds re-found some of their traditional protective qualities in April. The Refinitiv Global Focus convertible bond index shed -4.1% in US dollar terms, implying downside protection of c.50% compared to the MSCI World’s fall of c.8%. New issuance of convertible bonds remains lacklustre with a volume of just over US$10 billion since the start of the year. This compares to a volume of more than US$60 billion for the same period last year.

Commodities

The S&P GSCI Index achieved a positive return in April as higher prices in the agriculture and energy components offset weaker prices for industrial metals, livestock and precious metals. Energy was the best performing component of the index during the month amid rising demand, as the global economy normalises after the Covid-19 crisis, and supply curbs due to geopolitical issues such as Russia’s ongoing invasion of Ukraine.

Within the agriculture component, prices for corn and wheat were sharply higher on continuing fears that the ongoing war between Russia and Ukraine could hinder supplies (Russia and Ukraine account for around 30% of global wheat exports).

In industrial metals, the price of aluminium was sharply lower in April. Copper and lead also saw significant price declines in the month, while price falls for nickel and zinc were more muted. Within precious metals, the price of silver was significantly lower in April, while the decline in the price of gold was less pronounced.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Quarterly Markets Review – December 2021

A look back at Q4 2021, when developed market shares posted strong returns despite the emergence of the Omicron variant and the prospect of tighter central bank policy.


  • Global equities were stronger in the final quarter of 2021 as investors focused on economic resilience and corporate earnings.
  • In bond markets, government bonds outperformed corporate bonds. Markets began to price a faster pace of interest rate rises in the US.
  • Commodities saw a positive return as industrials metals gained.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities rose in Q4. Overall gains were robust despite a weaker November, during which fears over rising cases of the Omicron variant of Covid-19 and the speed of the Federal Reserve’s asset tapering had weighed. By year-end, these worries had largely subsided, while data continue to indicate that the economy overall remains stable and corporate earnings are robust.

US economic growth slowed sharply in the third quarter amid a flare-up in Covid-19 infections, but with activity since picking up, the economy remains on track to record its best performance since 1984. GDP increased at a 2.3% (annualised), up from the 2.1% pace estimated. This was still the slowest quarter of growth since the second quarter of 2020, when the economy suffered an historic contraction in the wake of tough mandatory measures to contain the first wave. Unemployment fell to 4.2%, the lowest since February 2020, from 4.6% in October. The participation rate rose slightly but is still about 1.5 percentage points lower than the pre-pandemic level.

Tech as a sub-sector was one of the strongest performers over the quarter, with chipmakers especially strong. Real estate also performed well, as investors expect e-commerce to continue to grow and drive further demand for industrial warehousing. Energy and financial names made more muted gains over the quarter.

Eurozone

Eurozone shares made gains in Q4, as a focus on strong corporate profits and economic resilience offset worries over the new Omicron variant. A number of countries did introduce restrictions on sectors such as travel and hospitality in order to try and reduce the spread of the new variant. The flash composite purchasing managers’ index hit a nine-month low of 53.4 for December, as the service sector was affected by rising Covid cases. However, equity markets drew support from early data indicating a lower risk of severe illness.

Utilities were among the top performers with IT stocks also registering strong gains. Technology hardware and semiconductor stocks performed particularly well. The luxury goods sector also performed very strongly, recovering from the summer sell-off which was sparked by a focus on “common prosperity” in China. Meanwhile, the communication services and real estate sectors saw negative returns.

The quarter was marked by volatile gas prices which contributed to higher inflation. The eurozone’s annual inflation rate reached 4.9% in November, compared to -0.3% a year earlier. The European Central Bank said it would scale back bond purchases but ruled out interest rate rises in 2022.

Germany’s coalition talks reached a conclusion. In December, Olaf Scholz of the Social Democrats (SPD) succeeded Angela Merkel as chancellor. His party is in a coalition government with the Greens and Free Democrats (FDP).

UK

UK equities rose over the quarter. Encouraging news around Omicron during December saw a number of economically sensitive areas of the market largely recoup the sharp losses they had sustained in the initial sell-off in late November, such as the banks. Some areas reliant on economies reopening, however, such as the travel and leisure and the oil and gas sector were unable to make up November’s losses and ended the quarter lower.

A number of defensive areas outperformed, including some of the large internationally diversified consumer staples groups. However, expectations China would maintain a zero tolerance approach to Omicron continued to impact sentiment towards a number of other globally exposed large cap companies. These consistently underperformed over the quarter, despite some uncertainties around increased regulatory oversight in China having abated.

Some domestically focussed area were particularly volatile and not just the travel and leisure companies directly disrupted by the latest Omicron related restrictions. The share prices of UK consumer facing sectors such as retailers and housebuilders yo-yoed inline with expectations around the timing of a rise in UK base rates, which came in December. Many retailers grappled with supply chain disruptions, resulting in some high profile profit warnings, despite strong demand.

Japan

After declines in October and November, the Japanese stock market regained some ground in December to end the quarter with a total return of -1.7%. The yen was generally weaker in the quarter.

Japan held a general election in October. Expectations for the ruling Liberal Democratic Party’s (LDP) election performance under Mr Kishida’s leadership were modest at best. However, in the event the LDP lost only 15 seats and retained a solid majority in its own right. With the election out of the way, the political focus shifted to a substantial fiscal stimulus package. This includes direct cash handouts to households in an effort to kick-start a consumption recovery in the first half of 2022.

From late November, renewed short-term uncertainty over the new Covid variant temporarily obscured the increasingly positive outlook for Japan. Japan inevitably imported its first known case of Omicron in December, but overall infection rates remain remarkably low, as they had throughout 2021.

The US Fed’s discussion of accelerated tapering led to some short-term weakness in stock prices in December, despite the fact that such a move is very unlikely to be followed by Japan in the foreseeable future. The Bank of Japan’s own Tankan survey, released in December, contained no real surprises, although the overall tone was reasonably upbeat. There was some evidence of a slight pick-up in corporate inflation expectations over the next two years. Meanwhile, the current inflation rate crept back into positive territory as several one-off factors begin to drop out, but there still seems little chance of Japan experiencing a short-term inflation spike as seen elsewhere.

Among other economic data released in December, there was a genuine positive surprise in the strength of the rebound in industrial production as auto output began to recover from the temporary weakness caused by the global semiconductor shortage.

Asia (ex Japan)

Asia ex Japan equities recorded a modest decline in the fourth quarter. There was a broad market sell-off following the emergence of the Omicron variant of Covid-19 which investors feared could derail the global economic recovery.

China was the worst-performing market in the index in the quarter, with share prices sharply lower, along with neighbouring Hong Kong, on investor fears that new lockdown restrictions would be instigated following the rapid spread of the new Covid-19 variant. Share prices in Singapore also ended the fourth quarter in negative territory as investors continued to track developments surrounding the new Omicron variant. There were also fears that the city-state’s government might have to scale back some recently relaxed curbs on activity. India and South Korea also ended the quarter in negative territory although the declines in share prices were more modest.

Taiwan and Indonesia were the best-performing index markets in the fourth quarter and the only two index markets to achieve gains in excess of 5% in the period. In Taiwan, positive economic data and a rise in exports boosted investor confidence, with chipmakers performing well. Share prices in Thailand, the Philippines and Malaysia also ended the quarter in positive territory.

Emerging markets

The MSCI Emerging Markets Index lost value in Q4 and underperformed the MSCI World Index, with US dollar strength a headwind. Turkey was the weakest index market, amid extreme volatility in the currency. The central bank lowered its policy rate by a total of 400bps to 14%, despite ongoing above-target inflation which accelerated to 21.3% year-on-year in November. With the lira coming under significant pressure, President Erdogan announced an unorthodox scheme to compensate savers for lira weakness, in an effort to reduce the use of US dollars.

Chile lagged the index as leftist Gabriel Boric was elected president. Brazil underperformed as the central bank continued to hike rates in response to rising inflation; the policy rate was increased by a total of 300bps during the quarter. Meanwhile, concerns over the fiscal outlook, and political uncertainty ahead of October 2022’s presidential election, also weighed on sentiment.

Russia lagged as geopolitical tensions with the West ratcheted up, amid a build-up of Russian troops on its border with Ukraine. China also finished in negative territory as concerns over slowing growth persisted, exacerbated later in the quarter by uncertainty created by rising daily new cases of Covid-19.

By contrast, Egypt finished in positive territory and was the best performing index market. Peru and the UAE also posted double digit gains in dollar terms. Taiwan, aided by strong performance from IT stocks, Indonesia and Mexico all recorded solid gains and outperformed.

Global Bonds 

Markets were buffeted over the quarter by persistent elevated inflation, hawkish central bank policy shifts and the emergence of the Omicron Covid-19 variant. In bond markets, 10-year government yields were largely unchanged. Yields followed a downward trajectory for most of the quarter before reversing in the final weeks of the year as sentiment improved. Yield curves flattened, with shorter-dated bonds hit as central banks turned more hawkish.

Most notably, US Federal Reserve (Fed) rhetoric turned increasingly hawkish in November. Chair Jay Powell and other members of the policy committee suggested tapering could be accelerated, which it was in December, and that they may stop referring to inflation as “transitory”.

The US 10-year Treasury yield was little changed for the quarter, from 1.49% to 1.51%. It reached 1.7% in October amid elevated inflation and expectations of policy tightening, then a low of 1.36% in early-December amid fears over the Omicron Covid-19 variant. The US 2-year yield increased from 0.28% to 0.73%.

The UK 10-year yield fell from 1.02% to 0.97%, dropping sharply in early November as the Bank of England (BoE) unexpectedly elected not to raise rates. The BoE did, however, raise rates in December and with fears over the Omicron variant fading, yields rose. The 2-year yield sold-off, from 0.41% to 0.68%.

Germany’s 10-year yield was little changed, from -0.17% to -0.19%, but this reflected a late sell-off with the yield having fallen below -0.40% in December. Italy’s 10-year yield increased from 0.86% to 1.18%. Eurozone inflation picked up considerably, rising to the highest level since 2008 and to a near 30-year high in Germany. European Central Bank President Christine Lagarde broadly affirmed dovish messages, but comments from other ECB officials were more hawkish.

Corporate bonds lagged government bonds for the quarter. In investment grade, the US market saw modestly positive total returns (local currency), but Europe weakened. US high yield was the standout performer, with positive returns and narrowing spreads. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

In emerging markets, local currency bond yields rose, particularly where central banks continued to raise interest rates amid elevated levels of inflation. Central and eastern Europe underperformed. EM currency performance was mixed, influenced by shifting risk sentiment, despite the prospect of higher interest rates.

EM hard currency bonds declined, with high yield significantly weaker, though investment grade sovereign bonds saw positive returns.

Global equities enjoyed a strong quarter with the MSCI World index up 6.8% but convertible bonds could not benefit from the equity market tailwind. The Refinitiv Global Focus index of balanced convertible bonds finished the last quarter of 2021 with a disappointing loss of -1.9%. Throughout the quarter, $25 billion of new paper hit the market bringing the total of new issuance to US$160 billion for 2021.

Commodities

The S&P GSCI Index recorded a moderately positive return in the fourth quarter despite a sharp decline in the price of natural gas. The industrial metals component was the best-performing segment in the quarter as the global economic recovery gathered pace. There were strong gains in the prices of zinc, nickel, lead and copper.

The agriculture component also achieved a positive return in the quarter, with robust gains recorded for coffee, cotton, corn and Kansas Wheat. Precious metals also gained in the quarter, with modest price gains for siler and gold.

The energy component recorded a modest decline in the quarter, with a sharp fall in the price of natural gas offset by modestly higher prices for unleaded gasoline, crude oil and Brent crude.  


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – November 2021

A review of markets in November when the identification of a new Covid-19 variant sent shares lower.


  • Global equities fell in November, with fears over the new “Omicron” variant of Covid-19 weighing on sentiment.
  • In bond markets, weaker risk appetite led government bond yields lower (meaning prices rose).
  • Commodities fell with oil prices lower amid worries the new variant could result in reduced demand.  

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US stocks traded slightly lower in November. Investors grappled with both a hawkish tilt to commentary from the Federal Reserve (Fed) and the emergence of a new coronavirus variant. Chair of the Fed, Jerome Powell, noted that the strength of the US economy combined with the threat of persistently higher inflation meant a swifter tapering of asset purchases – currently under way at a rate of $15 billion a month – is under consideration. At the same time, the emergence of the Omicron variant of Covid-19 has cause some to question the sustainability of the economic strength and advocate for more patience.

As it stands, unemployment in the US is low, having fallen to 4.6% in the latest (October) release from 4.8% in September. Retail sales have been growing for several months and industrial activity, as measured by composite PMI data, is robust. But pent-up demand continues to vie with supply constraints, adding to other contributing factors in higher inflation such as stimulus measures. Consumer price index inflation (CPI) rose 0.9% last month after gaining 0.4% in September, significantly higher than expectations.

The S&P500 declined slightly over the month, as investor sentiment stabilised towards month end. The financials, communication services and energy sectors were amongst the weakest areas of the market. The technology and consumer discretionary sectors held up better, eking out small gains. In particular, US chipmakers gained strongly on expectations that despite current supply constraints, robust demand should ultimately be reflected in future earnings.

Eurozone

Eurozone shares fell in November as rising Covid-19 cases saw some countries re-introduce some restrictions on activity. At the end of the month, the discovery of a new “variant of concern” added to investors’ worries that more restrictions may be needed, potentially damaging business activity.

The weakest sectors for the month were energy and financials. Sectors that are sensitive to the economic reopening and recovery fell on fears the new Omicron coronavirus variant could result in lower demand. The best performing sector was communication services amid merger & acquisition activity. Private equity group KKR launched a €33 billion takeover offer for Telecom Italia.

The flash November estimate put eurozone annual inflation at 4.9%, up from 4.1% in October and well above the European Central Bank’s 2% target. It is the highest inflation level in the single currency era. However, the European Central Bank (ECB) remained reluctant to tighten monetary policy. Christine Lagarde, president of the ECB, said that the current price pressures would fade by the time tightening measures took effect.

Germany’s coalition talks reached a conclusion. Olaf Scholz of the Social Democrats (SPD) will succeed Angela Merkel as chancellor with his party in a coalition government with the Greens and Free Democrats (FDP). Climate targets are expected to be a key focus for the new government. Meanwhile, the EU released its first ever estimates of quarterly greenhouse gas emissions. This showed emissions for Q2 2021 were up 18% on the previous year, when activity was hit hard by Covid-19 lockdowns.

UK

UK equities fell over November. In line with many other markets, economically sensitive areas underperformed, including the energy (sharp decline in oil prices) and financial sectors. Areas reliant on reopening, such as the travel and leisure sector (airlines, hotels) performed particularly poorly. This occurred as international travel restrictions as well as domestic measures were reintroduced in response to Omicron.

Financials lagged due to a combination of factors related to the news that the Covid variant was of concern to world health authorities. These related factors included fresh uncertainty as to when developed market central banks might raise interest rates. Additionally, the expectation that China would maintain a zero tolerance approach to the virus added to fears the variant would have a severe impact on business activity, and on UK quoted companies exposed to the country.

At the beginning of November the Bank of England (BoE) refrained from increasing base lending costs, confounding expectations it would become the first major developed market central bank to do so. Some domestically focused areas of the market proceeded to bounce back on this news, reversing underperformance of recent months, when it was thought the BoE would be forced to cool economic activity to get a handle on consumer price inflation.

Consumer-facing domestic sectors, such as housebuilders and retailers, and domestically focused travel and leisure stocks, such as pub companies, helped small and mid-cap (SMID) equities recoup some of the ground lost since the summer –  up until the point of the Omicron news. Many of these companies then experienced very sharp sell-offs as some Covid restrictions were reintroduced, including the wearing of face masks, which contributed to UK SMIDs underperforming over the month as a whole.

Japan

The Japanese stock market declined by 3.6% in November as initial optimism over the reopening of Japan’s domestic economy was reversed sharply in the final week on news of the Omicron variant. Currency markets also changed direction, with yen weakness in the early part of the month quickly reversed as investors sought safe-haven assets during a period of greater uncertainty.

Renewed short-term uncertainty over the new Covid variant has temporarily obscured an increasingly positive outlook for Japan. Prior to this, a stable political situation had emerged as Prime Minister Kishida formed his new cabinet after the general election at the end of October. Details also gradually emerged in November of a substantial fiscal stimulus package, which is slightly larger than previous expectations and could have a significant impact on GDP in 2022.

The government is making a significant effort to reinforce the recovery in the domestic economy following the lifting of the state of emergency at the end of September. Within the stimulus package, there is a particular focus on boosting consumption, by giving direct cash handouts. Although the timing of the package was not a surprise, the actual content has been influenced somewhat by the change in prime minister and the strength of the LDP’s victory in the general election.

Economic data released in November provided few surprises as higher commodity prices and supply-chain constraints continue to impact the economy. Industrial production numbers are also influenced by the production cuts announced by Japanese auto makers as a result of the global semiconductor shortage. Historic data for Q3 GDP, released in mid-November, showed a contraction in the overall economy, primarily due to the state of emergency that remained in place throughout the quarter, but this result had no major influence on sentiment. Meanwhile, inflation crept back into positive territory as several one-off factors begin to drop out, but there is still little chance of Japan experiencing a short-term inflation spike as seen elsewhere.

Asia (ex Japan)

Asia ex Japan equities declined in November amid a broad market sell-off following the emergence of the Omicron variant of Covid-19. Investors feared the new variant could derail the nascent global economic recovery. The news comes amid a surge in new Covid-19 cases in some parts of the world.

Singapore was the worst-performing index market in November as investors continued to track developments surrounding the new Covid-19 variant and whether existing vaccines would prove to be less effective. There were fears that the city-state’s government may have to scale back some recently relaxed curbs. Chinese stocks were also sharply lower in November, along with neighbouring Hong Kong, on fears that new lockdown measures would be instigated following the rapid spread of a new Covid-19 variant.

Share prices in Thailand, South Korea and Malaysia recorded significant declines in November. Share prices were also weaker in Indonesia and India in the month, although the declines were less pronounced than in some index markets. Taiwan and the Philippines were the only index markets to achieve a positive return during November, although the gains in both markets were modest.

Emerging markets

Emerging market equities were down in November as early month gains were more than erased. Market expectations for earlier Fed policy tightening, together with uncertainty over the outlook for growth and inflation created by the Omicron variant, weighed on risk appetite.

Turkey, where the lira depreciated by more than 27%, was among the weakest markets in the MSCI EM index. During the month the central bank continued to cut its policy rate, despite ongoing above target inflation. Hungary and Poland underperformed amid concern that more rapid interest rate hikes could be required. Net energy exporters, notably Russia but also Saudi Arabia and Colombia, lagged as crude oil prices fell. China underperformed the index, while markets which were set to benefit from ongoing economic reopening, such as Thailand and Greece, also finished behind the index.

Conversely, the UAE was the best performing market in the MSCI EM index, supported by strong performance from telecoms company Etisalat Group. Chile, where first round presidential election results were well received by markets, the Philippines and Taiwan all posted positive returns and outperformed. Taiwanese equities were led higher by semiconductor related names which benefitted from rising expectations for metaverse, or augmented reality, demand growth.   

Global Bonds 

The emergence of the Omicron Covid-19 variant punctured risk sentiment in November. Government yields fell and the US dollar rallied, while stocks and high yield credit sold off. The oil price fell sharply due to concern over global demand.

Yields were buffeted through the month, as inflation indices in the US, Europe and UK remained elevated. The US consumer price index rose 6.2% year over year in October, the highest level since 1990.

The US Federal Reserve rhetoric turned increasingly hawkish over the course of the month. Chair Powell and other members of the policy committee suggested tapering could be accelerated and that they may stop referring to inflation as “transitory”. Nevertheless, the US 10-year Treasury yield fell from 1.56% to 1.46% over the month, with an intra-month high of 1.69%. The yield curve flattened further, as the 2-year yield rose from 0.50% to 0.57%.

The German 10-year yield fell from -0.09% to -0.34%. The Italian 10-year yield from 1.13% to 0.98%. European Central Bank (ECB) President Christine Lagarde told the European Parliament that rate rises next year are unlikely. Eurozone inflation rose 4.1% year on year in October.  

The UK 10-year yield fell from 1.03% to 0.81%, moving markedly lower as the Bank of England left the policy rate unchanged, against market expectations.

The risk-off move was reflected in corporate bonds. Investment grade credit saw flat total returns (local currency), but underperformed government bonds. High yield (HY) declined, with spreads widening sharply in the final week of the month. US HY fell -1.0% while the euro market declined -0.6%. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

There was mixed performance across both hard and local currency emerging market (EM) debt. EM currencies declined. The Turkish lira fell sharply as the central bank cut rates despite a double digit rate of inflation.

Convertible bonds were dragged down by equity market headwinds and shed -2.6% for November. Primary markets were strong and $17 billion of new convertibles were launched. The combination of falling equity markets and strong primary market supply resulted in a general cheapening of convertible bonds. Valuations of European convertibles were hit the most.

Commodities

The S&P GSCI Index recorded a negative performance in November, driven lower by sharp declines in the price of oil following a broad market sell-off triggered by the emergence of the Omicron variant of Covid-19.

Energy was the worst performing component of the index in November. The industrial metals component also recorded a negative performance in November, with lower prices for zinc, lead, aluminium and copper. The precious metals component also declined in November, with lower prices for both silver and gold. The agriculture component was negative overall, with a sharp decline in the price of cocoa. Conversely, the price of coffee was significantly higher in November. Livestock was the only component of the index to record a positive performance in November.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – October 2021

A look back at markets in October, when shares shrugged off worries over inflation to make further upward progress.


  • Global stock markets gained in October, supported by encouraging corporate earnings and an easing of fears around China’s property sector.
  • Government bond yields broadly rose as central banks indicated they were prepared to withdraw monetary policy accommodation in light of rising inflationary pressures.
  • Commodities gained with the energy component performing strongly.   

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities gained in October. Earnings releases were generally strong, with a positive update from Caterpillar – often seen as an economic bellwether – setting a positive tone. There were, however, notable disappointments from Apple and Amazon. Apple cited supply disruption – principally regarding chip availability – as responsible for softer revenues, while Amazon alluded to labour shortages adding to costs.

Economic data indicated a marked slowdown in activity. In Q3, US GDP growth was the slowest in over a year at an annualised 2.0% quarter-on-quarter, down from 6.7% in Q2. But data also suggested that consumer confidence is very high. Supply chain disruption and consequent shortages of big-ticket items such as vehicles appears to have curtailed spending more than a fall in demand.

The economic releases did not dissuade the Federal Reserve (Fed) from its plans to taper quantitative easing to a full stop by mid-next year. Elevated inflation figures are still held by the central bank to be transitory.

Some of the strongest returns in the month came from the consumer discretionary and energy sectors. Gains in the consumer staples and communication service sectors, while positive, were more muted.

Eurozone

Eurozone shares posted gains in October. The Q3 corporate earnings began in the month and showed ongoing evidence of strong demand, although cost pressures are also beginning to be felt. The top performing sectors included utilities, IT and consumer discretionary. Underperforming sectors included communication services and real estate.

The month brought soaring power prices amid shortages of natural gas. However, prices declined towards month end after Russian President Putin called for Gazprom to start filling European storage facilities. The Spanish government backed away from plans to impose a tax on “excess profits” made by utility companies. This helped the share prices of southern European utilities to rebound after steep falls in September.

Euro area annual inflation was estimated at 4.1% for October, up from 3.4% in September. However, the European Central Bank (ECB) reiterated that it expects the current spike in inflation to prove transitory. Meanwhile, Q3 GDP growth was 2.2%, compared to 2.1% in Q2.

Forward-looking data indicated that supply bottlenecks are starting to weigh on growth. The flash composite purchasing managers’ index (PMI) was 54.3 in October, a rate that still indicates economic expansion but is a six-month low. The PMI is based on company surveys, with a reading above 50 indicating expansion and below 50 indicating contrction.

In Germany, talks continued over the formation of the next governing coalition. It will likely comprise social democrats, greens and liberals and be led by Olaf Scholz, the current finance minister. There is also changing coming at the Bundesbank (Germany’s central bank) after Jens Weidmann said he would step down from his position as head of the bank at the end of this year.  

UK

UK equities rose over October, helped by a strong start to the Q3 reporting season. Internationally focused sectors led the market higher, including financials, with banks in particular performing very well. Financials performed well amid growing expectations that the US Federal Reserve and Bank of England (BoE) would soon react decisively to rising inflationary pressures.

That large cap internationally focused banks recovered so well was reflective of how heavily influenced they are by short-term market interest rates in the US, which picked up markedly. Meanwhile, a number of UK large caps exposed to China also enjoyed something of a recovery, reversing some of their recent underperformance.

Expectations that the BoE might become the first of the world’s major central banks to raise rates also, in part, explained the poor performance of a number of the UK domestically focused areas of the market. This was evident for the consumer-facing domestic sectors, such as housebuilders, and, more widely, was reflected in the underperformance of UK small and mid cap (SMID) equities.

Fears around the potential reimposition of restrictions as Covid infections picked up also weighed on the UK retailers, which continued to report supply disruptions, as evidenced by continued gaps on shop shelves. Signs of a recent recovery in economic momentum and some good news on the outlook for the economy within the Budget were insufficient to lift sentiment.

Japan

The Japanese stock market declined by 1.4% in October as investors digested the prospects for new prime minister Kishida, ahead of the general election which took place on 31 October. Global news flow was generally negative in the first half of October, especially from China, but the sustained strength of US markets provided some support for Japan. The yen continued to weaken against the US dollar, reaching levels last seen in late 2018.

Expectations for the ruling Liberal Democratic Party’s (LDP) election performance under Mr Kishida’s leadership were modest, with the party bracing itself to lose up to 40 seats. In the event the LDP lost only 15 seats and retained a solid majority in its own right. Together with seats gained by its partners, the ruling coalition retains majorities on all standing committees and therefore complete legislative control.

Although the headline results have considerably improved the stability of the new administration, the election was not all plain sailing. One of Mr Kishida’s key allies in the LDP lost his seat and the electorate also delivered a potentially important message in the strong gains made by the reform-oriented Ishin party.

The political focus will now shift to a substantial fiscal stimulus package, details of which should be announced later in November. This is likely to include direct cash handouts to households in an effort to kick-start a consumption recovery in the first half of 2022, following on from the lifting of the state of emergency at the end of September.

Economic data released in October provided few surprises, although the Bank of Japan’s own assessment has improved somewhat, despite caution over higher commodity prices and supply-chain constraints.

Asia (ex Japan)

Asia ex Japan equities rose in October. Shares rallied at the start of the month, driven by positive earnings guidance and an ongoing decline in the number of new Covid-19 cases in many countries in the region. However, shares were weaker towards the end of the month with ongoing concerns over rising energy prices and higher inflation weighing on investor sentiment. Continuing tensions between the US and China on a number of issues including Covid-19, cyber security and computer chips also dented market returns towards the end of October.

Pakistan was the best performing market in the index, reversing its position as the worst performing market a month earlier. Indonesia also recorded a robust performance in the month. China recorded a modestly positive performance, with property stocks rallying after real estate group Evergrande made an interest payment on its debt during the month, allaying fears over a potential default and spill over into the wider market. Stocks in Hong Kong also achieved modest gains during the month.

South Korea was the weakest index market during October as foreign and institutional investors took profits after quarterly earnings reached all-time highs. However, these losses were offset by gains from technology stocks as solid earnings boosted chip makers. Indian equities were also weaker during the month and underperformed the broader market in October as concerns over inflation weighed on investor sentiment and weaker tech stocks outweighed gains in banking stocks.

Emerging markets

Emerging market (EM) equities recorded a positive return in October. Egypt was the best performing market in the index, aided by strong performance from Commercial International Bank. Peru, where political concerns moderated, Argentina and Pakistan all posted robust returns and outperformed the index. Indonesia, a beneficiary of higher coal prices, Russia, Qatar, Saudi Arabia, and Kuwait outperformed amid energy price strength.

China also finished ahead of the broader index, driven by a pick-up in several internet and e-commerce stocks which were negatively impacted by regulatory actions earlier this year.

By contrast, Brazil registered a decline, amplified by currency weakness, and was the weakest market in the index. During the month the government announced additional welfare spending, raising concerns over the fiscal outlook. Meanwhile, with inflation climbing to 10.25% year-on-year, the central bank continued to tighten monetary policy, hiking its key interest rate by 150bps to 7.75%.

Chilean equities were also firmly down amid political uncertainty ahead of next month’s presidential election, and concerns over a fourth pension withdrawal. India and South Korea also recorded negative returns and underperformed the index amid disappointment in Q3 earnings results. 

Global Bonds 

Government bond yields broadly rose as central banks indicated they were prepared to withdraw monetary policy accommodation in light of rising inflationary pressures. Yield curves were generally flatter on the month, with yields at the shorter end of the curves moving markedly higher, but falling in longer dated maturities.

The US 2-year Treasury yield increased from 0.28% to 0.50% with the 10-year rising from 1.49% to 1.56%. There were further signs of waning economic momentum and the expected start of policy tapering by the Federal Reserve (Fed) moved closer.

In the UK, the 2-year gilt yield rose from 0.41% to 0.71%, while the 10-year yield was one basis point (bps) higher at 1.03%. The Bank of England is still widely expected to be among the first major central banks to raise interest rates.

In Europe, inflation rose to the highest level since 2008 and to a near 30-year high in Germany with the European Central Bank (ECB) commenting that elevated inflation will likely prove transitory. The German 10-year yield rose from -0.19% to -0.09% and the 2-year from -0.69% to -0.58%, while the 30-year yield declined. Italy’s 10-year yield rose from 0.86% to 1.13%. This largely occurred late in October as ECB President Lagarde’s reluctance to push back against higher short-term rates was taken as a hawkish signal.

Within the corporate bond market, US investment grade (IG) was modestly positive and euro IG was negative in terms of total returns (local currency), with both broadly in line with government bonds. High yield (HY) saw negative returns and underperformed government bonds amid broader volatility. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

Emerging market (EM) government bonds (hard currency) were flat, as small gains in IG offset a small decline in HY, with EM corporate bonds moderately lower. Local currency EM bonds declined, while currency performance diverged.

Convertible bonds benefitted from the equity market tailwind and the Refinitiv Global Focus index, which measures balanced convertible bonds, advanced 1.6%. Overall, convertible bond valuations became cheaper, driven by higher discounts in US names as the universe of US convertible bonds was less sought after.  

Commodities

The S&P GSCI Index recorded a positive performance in October, driven by higher energy prices with demand increasing as the global economic recovery gathers pace. Energy was the best performing component in the month with crude oil and unleaded gasoline both sharply higher. Brent crude, heating oil and gas oil also recorded strong gains in October, while the price of natural gas fell back towards the end of the month following robust gains in September.

The industrial metals component also achieved a positive performance in October driven by a manufacturing-led recovery in many parts of the world, particularly China, and on-going supply chain problems. The agriculture component of the index also gained, with strong gains for cotton, Kansas wheat and wheat. The precious metals component advanced, with silver achieving a robust performance while the percentage increase for gold was more muted.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Quarterly Markets Review – Q3 2021

A look back at markets in Q3, which started well for shares but then saw gains erased amid rising inflation and worries over China.


  • Developed market shares were flat (in US dollar terms) in Q3. Declines in September erased prior gains. Emerging market equities underperformed amid a sell-off in China.
  • Global sovereign bond yields were little changed in the quarter. The US Federal Reserve said it would soon slow the pace of asset purchases.
  • Commodities gained with natural gas prices seeing a sharp spike.   

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities notched up a small positive return in Q3. Strong earnings had lifted US stocks in the run up to August, when the Federal Reserve (Fed) seemed to strike a dovish tone, confirming its hesitance to tighten policy too fast. However, growth and inflation concerns late in the quarter meant US equities retraced their steps in September.

The Fed stated in September that tapering of quantitative easing (i.e. a slowdown in the pace of asset purchases) will be announced at the November meeting, as expected, and will finish by mid-2022. Meanwhile, the fed funds rate projections now show a faster rate hiking schedule than they did in June. The median rate expectation for 2023 moved up to three hikes from two in June, with three additional hikes in 2024. Fed officials were evenly split 9-9 on a rate hike in 2022.

The shift comes in the context of revised real GDP growth – down to 5.9% for 2021 from the 7% growth estimated in the last meeting – while inflation has risen. The Fed now sees inflation running to 4.2% this year, above its previous estimate of 3.4%. The Fed raised its GDP projections for 2022 and 2023 to growth of 3.8% and 2.5%, respectively.

On a sector basis, financials and utilities outperformed. At the other end of the spectrum, industrials and materials struggled, although September’s sell-off hit almost all sectors. Energy was an exception, rising as supply constraints drove prices to highs – particularly Brent crude.

Eurozone

Eurozone equities were flat in Q3. The energy sector was one of the strongest performers, as was information technology with semiconductor-related stocks seeing a robust advance. Consumer discretionary stocks were among the weakest for the quarter, with luxury goods companies under pressure amid suggestions that China could seek greater wealth redistribution, which could hit demand.

The quarter had started with gains amid a positive Q2 earnings season and ongoing economic recovery from the pandemic. The Delta variant of Covid-19 continued to spread but most large eurozone countries have now fully vaccinated around 75% of their population against the virus, enabling many restrictions on travel and other activities to be lifted.

However, as the period progressed, worries emerged over inflation due to supply chain bottlenecks and rising energy prices. Annual inflation in the eurozone was estimated at 3.4% in September, up from 3.0% in August and 2.2% in July. The European Central Bank said that it would tolerate any moderate and transitory overshoot of its 2.0% inflation target.

The end of the period saw a surge in power prices as a result of low gas supply and lack of wind over the summer, among other factors. High power prices should be positive for utility firms. However, the sector – particularly in southern Europe – is susceptible to political intervention as evidenced by announcements of price caps in Spain and other countries. The utilities sector was a laggard in the quarter.

Germany held a general election which saw the Social Democrats (SPD) take the largest share of the votes. Coalition talks are now under way over the formation of a new government.

UK

UK equities rose over Q3 with the market driven by a variety of factors. While there were some clear sector winners (such as energy on the back of a recovery in crude oil prices) the difference between the best and worst-performing stocks, or dispersion, was quite marked. Within consumer staples, for instance, some of the more highly valued consumer goods companies performed poorly, while the more lowly valued grocery retailers performed well.

Merger & acquisition (M&A) activity remained an important theme. The period began with a recommended counter-offer for Wm Morrison Supermarkets and bid activity was seen across a variety of areas. Gaming remained an area of interest, with a proposal from US sports betting group DraftKings to acquire Entain. Within industrials there was headline-grabbing bid for aerospace and defence equipment supplier Meggitt. This in part explains the positive contribution from the consumer discretionary and industrial sectors, with the latter also helped by the easing of transatlantic travel restrictions and dollar strength against some weakness in sterling.

Small and mid cap (SMID) equities suffered in line with higher growth areas of the market more generally in September, but performed very well over the quarter a whole. SMID caps remained a sweet spot for M&A activity and made a useful contribution to overall market returns.

The Bank of England took a more hawkish tone as inflationary pressures continued to surpass expectations. Business surveys confirmed that supply bottlenecks are constraining output. Natural gas and fuel shortages made headlines towards the period end. These developments were also reflected in higher market interest rates, which helped support financials. However, Asian focused banks were lower in the period given the growing uncertainty around the outlook for Chinese markets and the economy.

Japan

The Japanese equity market traded in a range through July and August before rising in September to record a total return of 5.2% for the quarter. The yen showed little trend against the US dollar for most of the period before weakening at the very end of September to reach its lowest level since the start of the pandemic in early 2020.

Throughout the pandemic, Japan has consistently seen a lower infection rate than most developed countries but faced a much more serious test during early summer as infections picked up rapidly. Public opposition towards the government’s approach ratcheted up again and the approval rate for the Suga cabinet fell to the lowest levels seen since he took office in September 2020.

On 3 September, in a surprise decision, Prime Minister Suga announced his intention to resign without contesting the LDP leadership election. Mr Kishida was ultimately elected as LDP party leader and becomes Japan’s 100th prime minister. An establishment politician within the LDP, Mr Kishida should be essentially a safe, if unexciting, choice to guide Japan through the next stage of its post-Covid recovery. There is unlikely to be a change in the direction of monetary or fiscal policy as a result, and the likely shape of next major stimulus package should emerge over coming weeks..

It now seems likely that the upcoming general election could be held at the earliest practical date, on 31 October or, at the latest, mid November. Mr Kishida also inherits a stronger position in the vaccination programme which has sustained strong momentum in recent months after the very slow start seen in the first half of the year.

Although corporate results for the quarter that ended in June were strong, sentiment was impacted in August by the announcement from Toyota Motor of production cuts in September and October, due to the global shortage of semiconductors. Elsewhere for corporate Japan, order trends and capital expenditure plans continue to look strong.

Asia (ex Japan)

Asia ex Japan equities recorded a sharply negative return in the third quarter, largely driven by a significant sell off in China. This was partially due to concerns over the ability of property group Evergrande to service its debts. The Evergrande situation sparked global investor concerns over potential spill over risks.

Market concerns over inflation and the outlook for interest rates also dampened investor confidence during the quarter. China was the worst-performing index market, with sentiment towards the country also weakened by the government’s regulatory crackdown affecting the education and technology sectors. Power outages in China and the rationing of energy also spooked investors, hurting production of key commodities. The downside risks in China have significantly increased against a backdrop of slowing economic activity and concerns that recent regulatory policies will further weigh on growth.

Pakistan was also sharply weaker as ongoing political upheaval in neighbouring Afghanistan weakened investor sentiment towards the country, with fears that violence and unrest could spill over into Pakistan. Hong Kong and South Korea followed China lower, with both markets sharply lower as market jitters over China spilled out into the wider region.

India was the best-performing index market during the quarter and achieved a strongly positive performance as accommodative monetary policy and the easing of Covid-19 restrictions boosted investor sentiment. Indonesia also achieved a positive return. Singapore was almost unchanged, while declines in Taiwan and the Philippines were modest compared with the falls seen in other index markets.

Emerging markets

Emerging market (EM) equities declined in Q3, which saw a sell-off in Chinese stocks, concern over continued supply chain disruptions, and worries over the implications of higher food and energy prices for some markets. US bond yields rose towards the end of the quarter. Regulatory actions in China were the initial trigger for market weakness. These were compounded by the re-imposition of some Covid-19 restrictions and supply chain disruption in August, worries about possible systemic financial system risks stemming from the potential collapse of Evergrande, and power shortages.

Brazil was the weakest market in the MSCI EM index as above-target inflation continued to rise and the central bank responded with further interest rate hikes. Meanwhile Q2 GDP growth disappointed, developments in China weighed on industrial metals prices, and political rhetoric picked up ahead of next year’s presidential election. South Korea also posted a double-digit fall amid falling prices of dynamic random access memory chips (DRAM) price and concerns over the impact of power issues in China on production and supply chains. Weaker industrial metals prices also weighed on performance of net exporter markets Peru and Chile.

By contrast, net energy exporters in general outperformed, most notably Colombia, Russia, Kuwait, Saudi Arabia, Qatar and the UAE. India delivered a strong gain, with sentiment boosted in part by the recent stream of initial public offerings. The economy continued to recover while vaccinations picked up – India is now on track to deliver at least one dose to 70% of its population by November.

Global Bonds 

US and European government yields were unchanged for the quarter as an initial decline reversed in September amid a hawkish shift from central banks and continuing inflationary pressure. The UK underperformed, with a significant rise in yields on increased expectations for monetary policy tightening.

The US 10-year Treasury yield finished at 1.49%, one basis point (bps) higher. Yields fell initially, as the rapid economic recovery appeared to be moderating. However, as the market’s focus turned to rising inflation and the prospect of the withdrawal of monetary policy support, yields rose back to similar levels seen at the beginning of the quarter. The Federal Reserve (Fed) became increasingly hawkish, suggesting that asset purchase tapering could start as early as November and that it could be wound up by mid-2022, earlier than expected.

The UK 10-year yield increased from 0.72% to 1.02%, with the move occurring in September. As with the Fed, there was evidence of a marked hawkish shift among Bank of England (BoE) policymakers, with a suggestion that rate rises might be warranted before the end of the year. Recent economic indicators came out worse than expected, while year-on-year consumer price inflation rose to 3.2% in August, the highest since 2012.

In Europe, the German 10-year yield was one basis point (bps) lower at -0.19%. Italy’s 10-year yield finished 4bps higher at 0.86%. Economic activity continued at a robust pace, the region benefiting from the release of pent-up demand, having come out of lockdowns relatively late. Eurozone inflation hit a decade high of 3.4% year-on-year in August.

Among corporate bonds, high yield made positive returns, while investment grade credit was little changed. European investment grade outperformed government bonds, while the US market was in line with Treasuries. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

Emerging market government bond yields rose, particularly in September, though EM corporate bonds made a small positive return. Emerging market currencies broadly fell against the US dollar.

Over the quarter, convertible bonds could not benefit from the early tailwind provided by positive equity markets but provided some protection in September as equities declined. The Refinitiv Global Focus index, which measures balanced convertible bonds, shed -2.1% for the quarter. The valuation of convertibles cheapened slightly as a result of strong primary market activity. More than $25 billion of new convertible bonds were launched in the quarter.

Commodities

The S&P GSCI Index recorded a positive return in the third quarter, driven by sharply higher energy prices caused by increased demand in the wholesale gas market. Energy was the best-performing component in the quarter, with all subsectors achieving a positive result. The price of natural gas was significantly higher in the quarter, closely followed by gains in the prices of gas oil and heating oil. Unleaded gasoline also gained strongly on stronger demand as consumers started to return to normal consumption patterns after the Covid-19 crisis.

The industrial metals component was modestly higher, with a sharp rise in the price of aluminium offsetting price declines for lead, copper and nickel. The price of zinc was almost unchanged. The precious metals component also declined, with the price of silver sharply lower. The price of gold was also lower, but the decline was more modest.

The livestock component also declined. The agriculture component reported a small decline in the quarter, with sharp declines in the prices of corn and soybeans offsetting higher prices for cotton, cocoa, Kansas wheat, coffee and sugar.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.