Vladimir Putin annexed four Ukrainian regions after holding sham referendums on becoming part of Russia and vowed to use all means to defend the annexed territory. Ukraine announced it was applying for accelerated NATO membership.

The Nord Stream 1 and Bord Stream 2 gas pipelines sprang sudden leaks in the Baltic Sea. The leaks appear to be a result of explosions, with both Russia and the West accusing each other of sabotage.

Global bond yields surged as investors took fright after UK bond yields soared on fears that Kwasi Kwarteng’s budget would lead to a sharp rise in UK interest rates.

UK
The FTSE 100 fell 1.8% over the week.

Sterling and UK bonds plunged as new chancellor Kwasi Kwarteng’s mini budget raised fears of debt sustainability. Defined benefit pension funds were forced to dump gilts to meet margin calls, causing the Bank of England to intervene – the Bank will buy up to £65 billion of long-dated UK government bonds from 28 September. Credit rating agency S&P put UK debt on a ‘negative outlook’. In part the crisis was caused by the lack of accompanying forecasts from the OBR, the UK fiscal watchdog. The OBR later confirmed it will publish an economic forecast on November 23, the day the government is due to deliver its Autumn Statement.

As gilt yields soared, half of UK mortgages were suspended, adding further pressure on the housing market.

As the Conservative Party started its annual conference, opinion polls indicated that the Labour Party had a 33-point lead on the Tories.

UK second-quarter GDP was upwardly revised to a 0.2% expansion, but earlier data was revised down, meaning the economy remains 0.2% below the level it reached in the final quarter of 2019.

US

The S&P 500 slid 1.1% over the week. Over the quarter, US stocks declined more than 5.0%, marking the third consecutive quarterly loss and the longest streak of quarterly losses since the market collapse of 2008.

Fed officials backed a fourth consecutive 75bps rise at the next policy meeting in November.

The core PCE annual rate, the Federal Reserve’s preferred gauge of inflation, unexpectedly rose to 4.9% in August from the upwardly revised 4.7% in July.

Europe

The FTSEurofirst 300 eased 0.5% over the week.

EU ministers agreed on three proposals to lower electricity prices for consumers and businesses, including a 5% mandatory reduction in peak electricity consumption, a windfall levy on fossil fuel companies and a price cap on the price of electricity generated by non-gas power producers with revenues above that being recycled to consumers.

Germany announced a €200bn “protective shield” to cap gas and electricity prices for businesses and consumers. The aid package is the largest implemented by a European government since the start of the energy crisis.

Eurozone inflation rose 10% in the year to September, accelerating from 9.1% in August.

German inflation hit a 71-year high of 10.9% in September after the expiry of government measures to cushion the impact of the energy crisis, including a fuel duty rebate and a subsidised €9 monthly train ticket.

Japan

The Nikkei 225 tumbled 4.5% over the week. Pacific ex Japan

The World Bank forecast that China’s economic output will lag behind the rest of Asia for the first time since 1990.
The official Chinese manufacturing purchasing managers’ index increased to 50.1 in September from 49.4 in August, but the Caixin China Manufacturing PMI unexpectedly fell to 48.1 in September from 49.5 in the previous month. The official non-manufacturing PMI for China declined to a four-month low of 50.6 in September.

Emerging Markets

Russia’s MOEX Index fell to a five-year low amid concerns of fresh military escalation.

Mexico’s central bank hiked rates by 75bps, flagging elevated inflationary risks.

The Reserve Bank of India hiked rates by 50bps to 5.9% to tame high inflation that is now the highest since May 2019.

The annual inflation rate in Poland accelerated to a 26-year high of 17.2% in September.

Bonds
The yield on the 10-year US Treasury reached a 12-1/2-year high of 4% mid-week before closing the week at 3.83%.

The yield on the 10-year UK Gilt touched a 14-year high of 4.5% before closing the week at 4.08%, a rise of 25bps over the week.

The yield on the 10-year German Bund rose an 11-year high of 2.25% before closing the week at 2.11%.

The yield on the Italian 10-year government bond rose as high as 4.8%, its highest since 2013, while spreads between Italian and German 10-year yields rose to more than 250bps, the highest level since 2020, on concerns about whether Italy’s far-right coalition government would stick to EU rules.

Currencies

Sterling fell to its lowest every level against the US dollar, while the Chinese renminbi fell to its lowest level since 2008.