Global equity markets broadly declined in value in September, erasing gains over the financial year to date. The value of the Australian Dollar mildly rose against a basket of major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. Australian and international fixed interest markets posted negative returns reflecting rising bond yields.

The Board of the Reserve Bank of Australia (RBA) met on 5 September to discuss global and domestic economies and markets, and to review their monetary policy settings. The RBA left the cash rate target unchanged at 4.1%. Whilst discussing their monetary policy decision the minutes stated “members noted that inflation was still too high and was expected to remain so for an extended period. The experience in other countries continued to suggest that services price inflation might take some time to decline. Members also observed that the data received on wages over the prior month had been broadly consistent with the Bank’s forecasts; the labour market remained tight but conditions were easing”. The September meeting was the final monetary policy meeting for Philip Lowe as Governor of the RBA, his successor, Michele Bullock, took over as Governor on 17 September. On 3 October, whilst not in the timeframe captured by this commentary, the RBA maintained the cash rate at 4.10%.

The latest inflation data in the developed world diverged substantially depending on the region, based on data released in September. In Australia and the United States, the headline year-on-year CPI measures increased in August to 5.2% and 3.7% (from 4.9% and 3.2% in July) respectively. Japan and the United Kingdom saw little change in year-on-year inflation with August CPI reported values of 3.2% and 6.7% (compared to 3.3% and 6.8% in July) respectively. The Euro Area saw a major decline in year-on-year inflation in September with CPI in August being 5.2% which fell to 4.3% in September using preliminary estimates.

Whilst the boundary for territorial control of Ukraine did not move substantially in September, the Ukrainian military attacked the headquarters of the Russian Black Sea navy situated on the Crimean Peninsula, on 22 September. On the same day Russia’s draft spending plan was released with a reported 6% of GDP allocated to defense in 2024 (a substantial increase over the already large figure of 3.9% in 2023), which many political commentors take as an indication that Russia is committed to the Ukraine conflict for the long haul.

Towards the end of September, the US Government appeared to be headed for a shutdown over spending restrictions, however, a stop-gap spending bill was passed a few hours before the end of the month to avoid a shutdown. The stop-gap bill allows for a further 45-days of government spending, including natural disaster aid but no further funding for Ukraine.

Equities

Major developed foreign equity markets broadly fell in September. Developed markets (excluding Australia) returned -3.8% on a currency-hedged basis (and -4.0% unhedged in Australian dollar terms, reflecting the modest rise in the value of the Australian dollar). The only positively performing major foreign equity market was the UK stock market (FTSE 100 Index) returning 2.4% (in local currency terms) in September.

The Australian stock market (S&P/ASX 200 Index) was down during September, albeit less so than many global peers, returning -2.8%, with 10 out of 11 industry sectors experiencing negative returns. The sole positively returning sector was Energy which returned 1.3%. The worst performing sectors were Real Estate, Information Technology and Health Care with returns of -8.6%, -8.0% and -6.9% respectively.

Similarly, from a foreign developed market perspective, 10 out of 11 sectors produced negative returns for the month. Energy was the exception, returning +3.4%, whilst the worst performing sector was Information Technology which fell 6.6%.

Bonds

The Australian government bond yield curve steepened in September, with 2-year yields rising (0.29%) and 10-year yields rising further (0.46%) to finish the month at 4.08% and 4.49% respectively. Australian fixed interest returns for September were -1.5% (Bloomberg AusBond Composite Index).

Over September, major developed global government bond yields broadly rose. The Bloomberg Global Aggregate Index (Hedged) was down 1.8%, largely reflecting the rise in longer term bond yields. Notably the 10-year US government bond yields rose by 0.46% to break 4.5% in September, the highest it’s been since 2007.

Currencies

The Australian Dollar was mixed against major foreign currencies in September. The Australian Dollar decreased by 0.8% against the US Dollar, but increased by 3.1% against the British Pound, 1.8% against the Japanese Yen, and 1.8% against the Euro.

Commodities

Commodity prices broadly increased over September and the S&P GSCI Commodities Index ended the month up 3.1%. The price of WTI oil and Brent oil rose 8.6% and 9.7% respectively, both breaching US$90 a barrel for the first time this calendar year. Of the precious metals, the price of gold fell 4.7% and the price of silver fell 9.3 % in September.

Performance of key markets over relevant time periods to 30 September 2023:

Asset class	Index	Month* (% change)	FYTD* (% change)	Prior 12m* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-2.8%	-0.8%	13.5%
International Shares	MSCI World Ex Aust Unhedged A$	-4.0%	-0.4%	21.6%
International Shares	MSCI World Ex Aust Hedged A$	-3.8%	-2.9%	19.4%
US Shares	S&P 500 Index	-4.8%	-3.3%	21.6%
UK Shares	FTSE 100 Index	2.4%	2.2%	14.7%
Japanese Shares	Nikkei 225 Index	-1.6%	-3.3%	25.4%
Australian Listed Property	S&P/ASX 200 A-REIT Index	-8.6%	-2.9%	12.5%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-1.5%	-0.3%	1.6%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.3%	1.1%	3.6%
Currency	AUD/USD	-0.8%	-3.4%	0.5%

*Percentage changes in returns are for periods over the month of September (Month), financial year to date 30 June 2023 to 30 September 2023 (FYTD) and the prior 12 months 30 September 2022 to 30 September 2023 (Prior 12m). Past performance is not an indication of future performance.

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