Eastspring Investments
5 min read
Summary
The upcoming US presidential election poses a risk to the market, with higher volatility expected in the near term.
Market update
Equities: The Fed's 50 basis point (bp) interest rate cut, along with China's significant stimulus package lifted investor sentiment in September. US equities returned 2.2% and Developed Markets rose by 1.9%. Emerging Markets, led by China, rose 6.7%. China equities rallied 23.9%, fueled by the country’s stimulus measures, the Fed’s rate cut, and a depreciating USD. Asia Pacific ex Japan markets rose 7.9%. Japan equities bucked the trend and fell 0.4%, due to weak domestic spending and a strengthening yen. Korea equities also fell 2.9%, weighed down by the decline in Samsung Electronics’ share price and foreign investor selling amid ongoing concerns over the AI bubble.
Fixed Income: US Treasury yields generally declined across key tenors to close the month. The US Treasury 10-year yield fell approximately 10 bp to 3.81%, while the 2-year yield decreased by roughly 25 bp to 3.66%. Global bond markets saw modest gains as the global aggregate bonds delivered a 1.7% return and U.S. aggregate bonds rose by 1.3%. Increased expectations of a US “soft landing” supported US investment grade and US high yield credits, with returns of 1.7% and 1.6%, respectively. Emerging market debt returned 1.8% in USD terms, buoyed by a weaker US dollar.
Macro overview
Growth: The J.P. Morgan Global Composite PMI Output Index has remained above a “50” reading for 11 consecutive months, signaling still positive global economic expansion. However, momentum is slowing amid continued weakness in the manufacturing sector, which decelerated for the third consecutive month. Recent US data has been surprisingly strong, highlighted by robust September job gains and the U.S. Bureau of Economic Analysis’ (BEA) upward revisions to personal income and personal savings data. However, economic data across other key regions (e.g., Europe, Japan, EM) remain below expectations. Despite resilient US data, the possibility of a US recession in the next 6-12 months cannot be ruled out, although a severe contraction is unlikely.
Inflation: In September, the headline US Consumer Price Index (CPI) rose by 2.4% y/y compared to the same period last year, down from a 2.5% y/y rise in August. While core CPI remains relatively persistent, we maintain our view that inflation progress is moving towards the Fed's 2% target, although the path will be uneven. We are closely monitoring the labour market situation and the trajectory of wage growth to detect any significant shifts in the disinflationary trend or signs of a potential reacceleration in inflation. Additionally, we are being watchful of any potential supply-side driven inflation risks, especially those that may arise due to geopolitical tensions such as the escalating tensions in the Middle East.
Monetary Policy: As inflation moves closer to the Federal Reserve’s (Fed) 2% target, both the Fed and the markets are expected to focus on the labour market progress in the coming months, as pursuing maximum employment is part of the Fed’s dual mandate. We are cognisant that an easier monetary policy, combined with a still-resilient US economy could potentially result in a resurgence in inflation.
Please download report for a discussion on key risks.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).