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September on the Financial Markets
The economic situation
September saw an escalation of tensions in the Middle East and uncertainty over the outcome of the US elections. In this highly volatile geopolitical environment, global economic data, despite mixed data from various economies, improved slightly relative to expectations. As regards data, the main focus was on analyses of various economic indicators in terms of the Fed’s interest rate cut, a move long-awaited by the markets. The decision was not disappointing. The Fed decided to proceed with an initial normalisation of monetary policy, cutting the rates by 50 bps and indicating a total of 100 bps as the sum of the reductions until the end of 2024. The rate reduction cycle is expected to end by 2026 at a target range of 2.75%-3%. The neutral interest rate was raised by another 0.1 of percentage point to 2.9%. The new economic projections point to a slight rise in unemployment and a weaker inflationary pressure, while the risk balance has swung towards higher unemployment rather than higher inflation. During the Q&A session, Powell pointed out that a 50 bp reduction was a kind of commitment in order not to fall behind while ensuring that the labour market remained strong. He also pointed out that the 50 bp level would not represent a normal easing pace, which made it an exception to the rule. The rate cuts will not affect the pace of balance sheet size reduction (QT, Quantitative Tightening). Data from the GDPNow model published by the Atlanta Fed indicated implied GDP growth in Q3 2024, estimated at 2.5% p.a., and inflation level measured by the PCE at 3.05%, despite the fact that initial levels of pre-indexes indicated a deterioration in economic conditions. Initial PMIs for the euro area have proven to be weak. Even though analysts had not yet expected a turnaround in the industry downturn, data from the services sector in most economies (except Spain) has come as a negative surprise.
In Poland, current consumer sentiment, as measured by the current consumer confidence index, improved in September compared to August (+ 2.0 pp). The current consumer confidence index (CCCI) published by Statistics Poland (GUS) amounted to -13.9%. The sentiment is still moderately pessimistic, but much better than in September 2023. In the enterprise sector, the dynamics of sentiment have been mixed (Statistics Poland data). Sentiment in industrial processing and financial and insurance operations has improved slightly. Transport and warehouse management were also in a better position. A deterioration occurred in construction, retail trade and accommodation and catering. Only financial and insurance operations have positive sentiment. According to data published by Statistics Poland, Polish industrial output sold, non-seasonally adjusted (at constant prices), decreased by 5.2% in August relative to July, and by 1.5% year-on-year. According to PAP, analysts surveyed by PAP Biznes expected -0.4% and -3.7% YoY, respectively. The dynamics for June were revised upwards from 4.9% YoY to 5.2% YoY.
PPI inflation rates generally stabilized at low levels. By contrast, CPI inflation rates declined. The expected exception was Poland, where CPI inflation in September (Statistics Poland flash readings) was 4.9%, as predicted. The rise in electricity and gas prices supports the scenario of further increases in the coming months. Additionally, there is an increase in the capacity fee. However, its further path is still subject to considerable uncertainty due to the fiscal stimulus and wage dynamics. Base inflation remains at higher levels. The probability of the Monetary Policy Council reducing interest rates in 2024 is very low. Following the Fed cuts and continued reductions by the ECB, as well as in Hungary and the Czech Republic, the likelihood of reductions in 2025 has increased. It is worth noting at this point that real interest rates in Poland are at the highest level in the region, and the value of the zloty expressed in real effective exchange rate (REER) is high, which reduces export price competitiveness and is one of the pressures to reduce the rates sooner.
In the USA, inflation declined by 0.4% YoY and was in line with expectations. The share of services, the main driver of inflation in the USA, declined slightly. Commodity and energy price dynamics had a negative impact here. In our opinion, the most probable scenario at present is a “soft landing” in the US economy. The fate of the US economy will determine the fate of the rest of the world.
What surprised the markets in September were the moves taken by the PBOC (People's Bank of China), which launched a comprehensive easing using monetary policy tools (interest rate cuts) and announced further moves in the 4th quarter of 2024. Furthermore, measures were launched to stabilise the real estate market, such as a reduction in own contribution to the second property, a reduction in mortgage interest rates (-50 bps) and a very interesting tool in the form of allowing institutions to swap shares for bonds and cash bills. The market looks forward to another step, aimed at driving consumer demand widely through fiscal policy (October-November).
Bond markets
Bond yields remained virtually unchanged in September and volatility declined. Yield curves in both the US and the eurozone remain reversed (yields at the short end are higher than at the long end). In Poland, the yield curve is normal and bond prices generally increased month-to-month (except for 1Y bonds). The spread on US bonds (10 years) did not change. The spread on German bonds increased by 10 bps.
Stock indices
September was another month of high volatility in the equity market, although less so than in August. The beginning of the month was in decline and the other half was in index reconstruction. Once again, as in August, monthly returns do not reflect this volatility. The values of US indices changed as follows: NASDAQ (2.68%), S& P500 (2.02%), the Russell 2000 SME index (0.56%). The difference in returns between value and growth companies was greater than in August. The returns were 0.94% and 2.77%, respectively. The Japanese market continued to decline (Nikkei 225: -1.88%). Western Europe: DAX (2.21%) and CAC 40 (0.06%). Against this background, the Polish stock exchange performed worse. WIG20 (-3.65%) and the other major indices fell: WIG (-1.88%), mWIG40 (-2.25%) and sWIG80 (-1.06%). The Polish stock exchange continued to show significant variation in returns across sectors. The WIG GÓRNICTWO mining index was the strongest (+13.44%) and WIG GAMES was the worst (-19.96%). Due to the stimulation, the Chinese stock exchange was the ruler among the global markets (MSCI China: 23.07%).
Exchange rates
The US dollar, as measured by the U.S. Dollar Index (DXY), did not fluctuate significantly. It closed September with a value 0.9% lower relative to August. At the same time, the zloty remained stable against the euro and strengthened by 0.93% against the US dollar.
Gold
Geopolitical risk kept growing due to the situation in the Middle East. The international situation was also further complicated by the changing expectations of the outcome of the US elections and their consequences. Problems with maritime transport via the Red Sea and the Suez Canal continued. In terms of flows, the gold holdings accumulated in ETFs increased. During that time, gold prices kept growing and reached a new historic high, breaking the USD 2,600/oz barrier. Gold remained relatively resistant to USD fluctuations.
