MARKET PERFORMANCE SUMMARY

Markets remained nervous in September with

risk assets continuing to slide following the
August turmoil. While the FOMC decided to
postpone its interest rate hike, risk markets
interpreted the Feds reluctance to tighten as
a negative. Indeed, the FOMC statement cited
concerns that recent global economic and
financial market developments would slow
the US economy and lead to lower inflation.
Failure to hike at this point highlights the
Feds worries over the US growth outlook
which hurts risk sentiment. Data releases
were marginally disappointing with non-farm
payrolls advancing a smaller than expected
173k, retail sales missing consensus at 0.2%
and durable goods orders dropping 2.0%. That
said, Q2 GDP growth was revised upwards to
3.9% on a stronger contribution from
consumption. Despite the Fed keeping rates
unchanged the USD performed strongly as
various Fed speakers continued to suggest
that rates would still be hiked in 2015.
The strength of the USD meant most other
G10 currencies weakened on the month.
Adverse risk sentiment supported lowyielding funders JPY and EUR which
outperformed the rest of the G10 universe.
The ECB kept policy unchanged at its
September meeting but the press conference
was dovish with strong emphasis on downside
risks to growth and inflation accompanied by
downward revisions to ECB staff forecasts and
a reiteration that QE extension beyond
September 2016 is possible. On the political
front, Syrizas Alexis Tsipras secured victory in
the Greek general elections while the proindependence parties won a majority of seats
in the Catalan Assembly election which could
pave the way to eventual independence. The
commodity producing block fared the worst
as commodity prices remained depressed.

NOK weakened the most as the negative

terms of trade impact was compounded by
further easing by the Norges Bank which
surprised the market with a 25bps cut. GPB
also suffered as market pricing of the first BoE
hike was pushed back later into H2 2016 as
data releases generally seemed to indicate
some loss of growth momentum. The
manufacturing and services PMIs were
weaker than expected in August while
manufacturing production slumped and
broader industrial production data also
disappointed.
The deterioration in global risk appetite
weighed on EM currencies in September. The
worst performers were once again those
currencies with large commodity shares in
their export baskets such as BRL, ZAR, TRY,
IDR and MYR. BRL proved the most volatile
after S&P downgraded the country to sub
investment grade, frustrated by a lack of
progress on the governments fiscal
adjustment. This saw a near 50 big-figure rally
in USD/BRL during the month which
culminated in extraordinary auctions of USD
swaps by the central bank, helping stem the
rout. MYR also continued to weaken severely
after the central bank appeared to lighten its
grip on the exchange rate in August. The large
share of foreign ownership of Malaysian debt
coupled with political instability relating to
the 1MDB state development fund scandal
and the impact of Chinas slowdown on the
economy have created a toxic cocktail for
MYR. INR was a bright spot in EM as it
managed to strengthen against the USD. The
RBI surprised the market with a frontloaded
50bps cut which caused fixed income markets
to rally and helped strengthen INR.

September 2015

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