Two of the most powerful and influential institutions changed policies in September: the US Federal Reserve and the Chinese Politburo. Both surprised markets and yet globally equity and bond markets were broadly unchanged at the headline level during the month. The Federal Reserve announced a 50-basis point cut, exceeding expectations for a quarter point cut, to kick off their cutting cycle. The Fed cited growing confidence that much had been done to tame inflation and that the focus of the Fed has shifted to the downside risks to unemployment. However, payrolls data released at the end of the month surprised to the upside, indicating that while the labour market had moderated over the course of the year, an imminent growth slowdown in the US still seemed unlikely.
Whilst a cut from the Federal Reserve was well telegraphed, the Chinese authorities launched a coordinated stimulus effort, utilising monetary tools, asset purchasing programmes and the announcement of a fiscal stimulus programme following an unscheduled Politburo meeting chaired by President Xi. These measures are an attempt to address the ailing property market and falling consumption levels in the economy.
Given the measures to support the economy announced in China, emerging market equities outperformed dramatically over the month. Our holding in Chinese technology stocks, which we had bought in January when we believed it represented a deep value opportunity, rallied over 30% in September.
Fixed income markets were also a positive contributor to portfolio performance, with US TIPS outperforming a flat gilt market as inflation expectations rose over the month. Within Diversifying Assets, a position in a 2-10 steepener rallied over the month as the US yield curve moved into positive territory, having been inverted for over two years
