Markets in Q3: Gains, pains and oil reigns
PHOTO: FILE
The equation for financial markets over the last few months has been simple and painful: A near 30% surge in oil prices plus a steep rise in borrowing costs equal to a clattering for global stocks and bonds.
Sub plots have included Saudi Arabia and Russia cutting crude supplies and two African coups, but the main theme has been the Federal Reserve and Co continuing to crank up interest rates.
That higher-for-longer mindset has seen US Treasuries and German Bunds, traditionally the main ballast in portfolios, lose between 5.5% and 6.5%, most of which has come this month.
Equity bulls have also been biffed. World stocks are still up a respectable 8% for the year but have given back 7% - or $6 trillion - since August as even the tech giants have gone into reverse.
Gold has lost its shine too meaning that only oil and gas, cash and the dollar have proved reliably profitable.
“It’s not a good time to have an oil shock,” Fidelity’s Global Head of Macro and Strategic Asset Allocation, Salman Ahmed, said explaining his funds had becoming more cautious.
“If you are going above $100 a barrel and staying there you are starting to create that inflation narrative again.”
Those big Q3 bond market losses have come as the 10-year Treasury yield - the benchmark for world borrowing costs – has surged roughly 75 basis points to just above 4.5%. That is the largest quarterly jump in a year and one which hoists it back to its long-term average for the first time since 2007, according to Deutsche Bank. What’s long-term? From 1790 to today.
Hot oil
Brent’s near 30% rise is set to be its eighth best quarter of the millennium although at $97 a barrel it is still 30% below the level it hit after the Russia-Ukraine conflict.
Since then, there have been close to 500 interest rate hikes by central banks globally, including over 100 this year.
Published in The Express Tribune, October 1st, 2023.
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