The IMF warned of “stormy waters” for the global economy, saying it saw a growing risk of a global recession in 2023 and a 25% chance that growth would fall below 2%.

Global stocks and bonds were volatile as investors considered whether the deteriorating economic outlook would cause central banks to become less aggressive.

UK
The FTSE 100 advanced 1.1% over the first three weeks of October.

New UK chancellor Kwasi Kwarteng lost his job as the market turmoil relating to his unfunded tax cuts continued. He was replaced by

Jeremy Hunt, a veteran cabinet member prior to the Johnson era, who immediately reversed many of the measures announced in the mini budget and warned that austerity measures would be needed to plug the hole in public finances.

Prime Minister Liz Truss became the shortest serving UK prime minister on record as she was forced to resign after her authority ebbed away. The new UK PM will be decided in a truncated leadership contest with the result announced by Friday 28 October. Ex-Chancellor Rishi Sunak is the bookie’s favourite to replace Truss although ex-PM Boris Johnson is also sounding out whether he has sufficient support to return to no 10.

UK GDP shrank 0.3% in August due to the cost-of-living crisis.

UK inflation accelerated to 10.1% in September, up from 9.9% in August.

UK retail sales fell 1.4% in September while consumer confidence remains near a 50-year low, compounding concerns that the country is in a recession.

US
The S&P 500 rose 1.9% over the three weeks, while the tech-heavy Nasdaq slid 0.6%.

Markets are now pricing in expectations of US interest rates rising to just under 4.9% by May 2023, down from a peak of more than 5% but up from 4.6% before the release of the latest inflation data which showed US consumer prices rising at a stronger-than-expected annual rate of 8.2% in September. The annual rate of increase in core consumer prices rose to 6.6%, up from 6.3% in August.

The US economy added 263,000 new jobs in September. While that was down from 315,000 added in August, the data was still stronger than expected and further raised fears that the Fed would maintain its hawkish stance. The unemployment rate dropped to 3.5% in September, from 3.7% in August.

Netflix said that productions such as Stranger Things had helped it stem subscriber losses in the third quarter. Banking stocks, including Goldman Sachs, JPMorgan Chase and Bank of America, were also supported by better-than-expected third-quarter results.

Europe
The FTSEurofirst 300 rallied 2.3% over the three-week period.

Japan

The Nikkei 225 jumped 3.7% over the three weeks.

Pacific ex Japan

The Reserve Bank of Australia raised the borrowing costs rate by 25 bps to 2.6%, defying market estimates of a larger 50 bps hike.  China’s Xi Jinping was re-elected as president for a historic third term at the Communist party’s 20th National Congress. Xi outlined goals ranging from the unification of China and Taiwan to an “all-out people’s war” against COVID-19.

The publication of China’s third-quarter GDP statistics was delayed, as was the publication of other key economic data, while the National Congress was in session. The data will likely highlight the challenges China faces in meeting its official growth target of “about 5.5%”.
Shanghai reimposed strict COVID curbs in an attempt to combat a rise in infection levels.

In Hong Kong, the Hang Seng Index touched its lowest level since October 2011. Chinese chipmakers were particularly hit after the US imposed new export controls aimed at restricting China’s access to semiconductors. The controls will limit the sales of semiconductors made with US technology unless vendors obtain an export licence.

Samsung, the world’s largest memory chipmaker and smartphone producer, was hit by its first profit fall in three years, highlighting the slowdown in demand for electronic devices.

Emerging Markets

Turkey’s central bank cut interest rates by 150 bps to 10.5%, despite inflation exceeding 83% in September.

The Hungarian central bank increased its overnight collateralised loan facility from 15.5% to 25% in an attempt to stem the forint’s fall.

Bonds

The yield on the 10-year US Treasury bond jumped 49 bps over the three weeks, closing at 4.22%.

The yield on the 10-year German Bund rose 30 bps over the three weeks, closing at 2.41%.

The yield on the 10-year UK Gilt eased 7 bps over the three weeks, closing at 4.05% following the UK government’s fiscal U-turn. UK government bonds remained volatile, with the 10-year yield falling as low at 3.9% and as high as 4.6%. The 30-year bond touched a peak of more than 5.0%, around 150 bps higher than before the mini budget. The Bank of England has announced that it will recommence bond sales in November.

JPMorgan decided against including Indian bonds in its key emerging markets bond index until at least next year amid concerns over the domestic market’s ability to handle the large volume of capital inflows that were expected to follow the move.

Currencies

The Japanese yen touched a new 32-year low against the US dollar.

Commodities

Oil prices advanced on news that the international producers’ alliance Opec+ was planning a substantial cut in output.