EXANTE Quarterly Macro Insights Q3 2023

EXANTE Quarterly Macro Insights Q3 2023

Q3 review

The third quarter of 2023 was the worst in over a decade for equities while bond prices crashed as global central banks continued to raise rates or threatened to keep doing so. The S&P 500 fell 4.9% in September to post its worst month of 2023. Headline inflation was down on lower energy prices, but core inflation remained stickier as second round effects continued to be felt across the US, the Eurozone, and the UK. Although the Fed raised and then held rates in Q3, comments from Fed policymakers suggest a further rate hike should be expected before the end of the year, while the dot plot presented following the September meeting shows a higher median rate for 2024.

Energy stocks were the best performing US sector during the third quarter of 2023. Commodities were the notable outperformer, returning 4.7% over the quarter. Value stocks proved relatively resilient vs. their more expensive growth counterparts, returning -1.7% over the quarter in comparison to -4.9% for growth stocks. As noted by JPMorgan Asset Management, the UK market was the strongest performer regionally, returning 1.9% in part thanks to its relatively large tilt towards the energy sector as oil production cuts from Saudi Arabia and Russia supported a sharp rise in oil prices.

US indices for Q3 2023 (29 September 2023)

S&P 500 -3.39% QTD
Nasdaq 100 -3.09% QTD
Dow Jones Industrial Average -2.15% QTD
NYSE -3.01% QTD

According to the Nasdaq market intelligence desk, 5 of the 11 S&P 500 sectors were in the red in Q3. The best performing sector so far this year has been Technology (+34.7%), Communications (+40.4%), whereas the defensive Utilities and Consumer Staples are down 14.4% and 4.8% respectively. It was a mixed story for the mega caps with Apple, Microsoft, Nvidia, Tesla, and Amazon all down, while Meta Platforms and Alphabet remained up, largely due to continuing investor interest in AI.

In Q3 energy stocks were the best performers with the sector +12.2%Exxon Mobil, BP Plc, Marathon Petroleum, Occidental Petroleum, Halliburton, Baker Hughes and Phillips 66, all up over the quarter.

Basic materials stocks underperformed in Q3, with the sector -4.3%. Yara International, Albemarle Corporation, and CF Industries Holdings were upin Q3. Mosaic and Sibanye Stillwater were very slightly up on the quarter, while Newmont Mining, Freeport-McMoRan, and Nucor Corporation were down.

European Indices

Stoxx 600 -2.53% QTD
DAX -4.71% QTD
CAC 40 -3.58% QTD
IBEX 35 -1.72% QTD 
FTSE 100 +1.02% QTD 

Global Indices

Hang Seng -5.85% QTD
MSCI global -3.83% QTD 

Fixed Income

US Treasuries 10-year yield to 4.57%.
Germany’s 10-year yield to 2.84%.
Britain’s 10-year yield to 4.44%.

Government bond returns were negative across developed markets as yields continued to rise in Q3, with benchmark 10 year US treasuries ending the quarter at almost 16 year highs. The yield curve stayed inverted for the sixth straight quarter, although the inversion narrowed. Concerns over rising US debt issuance did weigh on the Treasury market with Fitch Ratingsdowngrading the US to 'AA+' from 'AAA' on 1 August. The Rating Watch Negative was removed and a Stable Outlook was assigned. Fitch cited the growing debt burden and an "erosion of governance" as reasons for its decision. The global aggregate bond benchmark fell by -3.6% in the third quarter. The US 10-year yield rose from 3.47% at the beginning of the year to 4.57% by the end of Q3 and the two-year yield increased from 4.87% to 5.05%. In Europe, Germany's 10-year yield increased from 2.39% to 2.84%. Although the Bank of England did raise rates to 5.25% in August, its surprise decision to hold in September helped gilts outperform, with the 10-year gilt remaining relatively unchanged over the quarter.

According to JP Morgan Asset Management, the best performing bonds this year have been High yield bonds, with the US and European benchmarks returning 6.0% and 6.1% respectively so far in 2023. UK Gilts returned -0.7% over the quarter as weaker growth data forced investors to reduce their expectations this hiking cycle. German bonds were -2.1% in Q3 due to hawkish ECB commentary as Germany, the manufacturing heart of Europe, continued to slow down throughout Q3. Italian bonds were -2.7% in Q3 as the economy slowed and politically motivated acts to curry public opinion, such as the ill-fated windfall tax on banks, which was botched in its implementation, drew investors ire.


Commodity stocks had a mixed quarter with energy performing best. Industrial metals including zinc, lead, and aluminium were slightly up in Q3 while nickel and copper continued to fall on concerns around Chinese demand.

Oil rose through much of Q3 as Saudi Arabia and Russia continued cuts while supply tightened in the US.

Gold declined in Q3 as the higher for longer message from the Fed and other major central banks was absorbed by the market and pushed sentimentdownwards. The support offered by government purchases proved to be insufficient to prevent gold from drifting lower.

The US

US equities ended the quarter significantly down although the overall levels of returns are still quite positive YTD. The annual inflation rate in the US accelerated for a second straight month to 3.7% in August from 3.2% in July. Although the unemployment rate rose by 0.3% to 3.8% in August. The number of unemployed persons increased by 514,000 to 6.4 million. The US composite flash purchasing manager’s index (PMI) fell marginally to 50.1 in September, down from 50.2 in August, emphasising the US economy is cooling. However, the economy appears to be relatively resilient as the labour market remains tight with the number of job openings rising by 690,000 from the previous month to 9.61 million in August 2023 despite the Fed's unprecedented monetary policy tightening measures.

The Eurozone

Eurozone equities fell in Q3 amid worries over the negative effects of interest rate rises on economic growth. However, Eurozone inflation slowed to a two-year low of 4.3% in the year to September, down from 5.2% in August. Core inflation excluding food, energy, alcohol, and tobacco, a closely watched gauge by the ECB, dropped to 4.5% from 5.3%, the biggest decline since August 2020. However, the labour market remains tight and there could continue to be wage pressures. Eurostat said the unemployment rate in the Eurozone was at 6.4% in September, down from August’s 6.5%. The youth unemployment rate in September fell to 13.8% from 13.9% in August. The ECB is likely to maintain its higher for longer mantra throughout the rest of Q4 and into Q1 2024. The MSCI Europe ex -UK equities were -3.4% in Q3. The ECB raised interest rates twice in the quarter, in July and in September, taking the deposit rate to 4%. Headline CPI declined while the core inflation rate in the Euro Area decreased to 4.5% in September of 2023, the lowest since August last year. PMI data showed that the Eurozone private sector was in contraction, although the composite reading was up to 47.1 in September from 46.7 in August. 

The UK

The UK economy continued to face a number of headwinds in Q3. The UK economy seems to be heading further into trouble with the S&P Global Purchasing Managers' Index (PMI) for the services sector dropping to 47.2 from 49.5 in August, sinking further below the 50 dividing line between growth and contraction. The Composite PMI fell to 46.8 in September from 48.6 in August, the lowest reading since January 2021. Inflation is falling, with headline inflation down to 6.7% in August from July’s 6.8% and core inflation rising by 6.2% in the 12 months to August down from 6.9% in July. The GfK consumer confidence index rose to -21 in September 2023, up by four points from -25 in August and retail sales rebounded in August, up 0.4%, after a revised fall of 1.1% in July. There is also the concern that wage growth continues to remain high, which may impact inflation. In May to July 2023, the annual growth for regular pay (excluding bonuses) was 7.8%. This is the same as the previous three-month period and the highest annual growth rate since comparable records began in 2001. Although the Bank of England’s Monetary Policy Committee (MPC) left interest rates unchanged at 5.25% in September after 14 consecutive meetings, there are concerns that rising wages and resilient domestic demand could require the BoE to take action again.

Asia ex-Japan

In Asia ex-Japan, Chinese equities were hit by renewed concerns about the property sector which weighed on sentiment, despite a number of new government and central bank stimulus measures announced over the quarter that were aimed at stabilising housing activity. The official NBS Manufacturing PMI increased to 50.2 in September 2023 from 49.7 in August and was the first growth in factory activity since March. China’s services sector activity slowed with the Caixin/S&P Global services PMI dropping to 51.8 in August from 54.1 in July, the lowest reading since December. As a result, in Q3 the MSCI Asia ex-Japan index was -3.2% according to JPMorgan Asset Management, with Hong Kong, Taiwan, and South Korea equity markets all down as factory output weakened and retail sales slowed. Concerns around the Chinese property market and the potential for the severity of the debt problems to grow affected regional currencies which were already battling with a rising USD.

Emerging markets

Emerging market (EM) equities were down over the quarter, with the MSCI EM index -2.8%. According to data from Schroders, Poland and Chile posted the biggest declines. Chile was hurt by falling lithium prices. Political uncertainty ahead of October’s parliamentary elections prompted an interest rate cut in Poland. South Africa continued to be plagued by its ongoing electricity crisis. Colombia, Hungary and Czech Republic all gained in Q3 with India and the UAE also posting strong performances. The best returns were from Egypt and Turkey. Turkey’s performance improved in Q3 largely due to rate rises which were viewed as a sign the central bank may, after over a year of cutting rates in response to political pressure, be becoming more orthodox in its policy approach.


The USD continued to strengthen throughout Q3, advancing for 11 straight weeks for its second longest streak in 50+ years as the Fed’s commitment to higher for longer became more entrenched in investors' minds. The ECB’s determination to battle inflation with its series of rate rises was not enough to stop the Euro’s drop against the USD. The EUR was -3.12% in Q3. Sterling also continued to decline against the USD. The GBP was down -3.99% in Q3 on its weakening economic outlook.


Bitcoin -11.56% QTD
Ethereum -13.56% QTD

Note: As of 6:22 pm EDT 29 September 2023 

The third quarter of 2023 was the “most financially damaging” quarter of the year, with almost $700 million in digital assets lost to various security incidents, according to the quarterly report of blockchain security firm CertiK. Cryptocurrencies also suffered in Q3 due to surging bond yields and USD strengthening.

What to think about in Q4 2023

There are a number of continuing and new risks to investors in Q4 2023 with the Federal Reserve, ECB and Bank of England still unable to guarantee that rates have peaked. Economic data over the quarter pointed to a deterioration in the growth outlook in the Eurozone and UK, with services activity starting to show signs of aligning with the already weak manufacturing sector. US inflation is expected to fall further in Q4 but there are concerns about wage growth in a still resilient labour market and the fact that oil has risen significantly, with Brent prices rising by 28% over the quarter, which may still feed into second round effects. With Saudi Arabia and Russia extending their voluntary oil output cuts through to the end of the year, markets will be looking to see if alternative supplies may come online or if greater uncertainty around the demand outlook represses prices. Higher oil prices not only threaten consumer spending, but could also prove problematic for central banks if headline inflation begins to reaccelerate. There also remains the problem of a possible government shutdown in the US November with the negative impact that would have on the economy as well as the risk it poses to the US credit rating. Rising issuance levels in the US that are required to sustain fiscal deficits are also worrying investors. With the search for a new Speaker of the House likely to cause party political infighting and the much anticipated recession, indicated by continuing inversion of the Treasury yield curve, will continue to weigh on sentiment, although it is likely to be short lived. Bonds will certainly rally if yields fall in line with falling inflation. However, unless there is a sudden shift in the outlook, the overall bond market is on track for its third straight year of losses. Despite the surge in yields in Q3, equities seem to be pricing in a rapid recovery in corporate profits. It is not clear yet that markets have adjusted rates pricing enough as they still seem to suggest that the Fed is able to get to a neutral monetary policy stance by 2024.

Economic and Geopolitical Risk Calendar:

The potential policy and geopolitical risks for investors that could negatively affect corporate earnings, stock market performance, currency valuations, sovereign and corporate bond markets and cryptocurrencies include: 

October 2023

4 October 2023OPEC+ Joint Ministerial Monitoring Committee. The JMMC will meet to discuss oil markets and potential oil quotas amid tightened markets. The JMMC does not decide policy, but may call an extraordinary meeting of OPEC ministers to do so.

13-15 October 2023 IMF/World Bank Annual Meetings. The meeting will take place in Marrakech, Morocco. The key themes include building economic resilience, reinvigorating global cooperation in terms of trade, and securing transformational reforms, particularly addressing the challenge of climate change, and supporting digitalisation.

22 October 2023 Argentina General Elections. The latest opinion poll from CELAG indicates that Javier Milei (LLA) is the candidate leading the polls with a slight advantage over the second place Sergio Massa (Frente). Mr. Milei managed to surprise many when his party won nearly 30% support in presidential primaries in August. 

26 October 2023 ECB meeting and monetary policy decision. ECB President Christine Lagarde has said “there is still much more ground to cover.” However, the focus will be on whether core inflation has comedown enough. Slowing growth, especially in the largest Eurozone economy, Germany, may increase reluctance among policymakers to consider any further tightening.

28-29 October 2023 G7 Trade Ministers’ Meeting. The meeting will take place in Osaka-Sakai (Japan). With global trade falling in 2023 and trade restrictions rising, the G7 will likely discuss the problems of rising geoeconomic fragmentation.

31 October 2023 Bank of Japan meeting. With inflation running well above target for several months and the Yen falling to multi-year lows after the September meeting left no change in rates, markets will be anxious to see whether the BoJ will finally begin considering tightening its lax monetary policy despite concerns over domestic and global growth.

31 October - 1 November 2023 US Federal Reserve Monetary Policy meeting. The Fed will remain data dependent. It appears that the Fed expects that the current policy could further weaken labour markets, thereby suppressing wage inflation. Fed Chair Powell said during September’s monetary policy press conference that an easing of wage pressure could come about if there is an unexpected increase in labour supply, thereby not necessitating tightening of monetary policy. Despite signs of economic slowdown, consumer demand has remained resilient although consumer confidence is falling. The housing market is also under pressure with rising mortgage rates.

November 2023

2 November 2023 Bank of England Monetary Policy Summary, minutes and Monetary Policy Report. Markets will be looking to see how confident the Bank is about the direction of growth in the UK and whether the full impact of previous rate rises have filtered through. 

13-14 November 2023 Asia-Pacific Economic Cooperation (APEC) 2023 Summit, San Francisco, California, USA. The summit will discuss supply chain resilience, digital trade, connectivity, opportunities for small and medium-sized enterprises, climate change and environmental sustainability as key themes for the summit.

26 November 2023 Organization of the Petroleum Exporting Countries+ (OPEC) ministerial meeting. The OPEC+ full ministerial meeting will take place to discuss oil production output, including quotas.

30 Nov-12 December 2023 Conference of the Parties to the UN Framework Convention on Climate Change (COP28). COP28 will take place in Dubai, UAE. As a result of disappointing progress at COP27, members will be under pressure to make significant progress in securing commitments to reducing carbon emissions.

December 2023

12-13 December 2023 US Federal Reserve Monetary Policy meeting. Much will depend on the data with markets potentially still anticipating a rate rise if the fall in inflation starts to moderate, wages continue to rise or labour markets remain overly tight.It is likely that unemployment will need to rise above 4% for the inflation rate to decline to the Fed’s 2% target. A soft landing is still possible, but may start to look increasingly unlikely.

14 December 2023 ECB meeting and monetary policy decision. The focus will be on whether core inflation has comedown enough or if the economy is being hindered by the higher for longer mantra, which would increase the likelihood of policymakers to raise rates again. 

14 December 2023 Bank of England Monetary Policy Summary and minutes. Policymakers will likely be focused on the data with a close eye on wage growth and employment numbers. Consumer confidence and activity in the housing market will also probably be factors for consideration.

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

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