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Growth disappoints, gold well supported by ongoing central bank purchases: September 2023 Market Commentary

Global Macro

In August, stocks and investor sentiment fell as growth data disappointed across the world, including in China.

In the US: Jerome Powell, head of the US Fed, announced the likelihood of the end of the interest rate hiking cycle by the end of the year. The market expects a last hike of 25bps within the next two months, which would bring the Fed funds rate up to 5.75%. As inflation is steadily receding, interest rates are likely to decrease in 2024.

In Europe: Inflation is still high at 5.3%. The European Central Bank (ECB) will continue to do whatever it takes to bring back inflation close to its target of 2%. On September 14th, the ECB is expected to raise its deposit rate by 25bps to 4%. Meanwhile, European markets have experienced weak growth: factory orders in Germany dropped 11.7%, the most since the Covid crisis in 2020.

In China: Although China has the fastest growth among large economies (+6.3%), it may slow down towards 5% by year end. Consequently, Chinese policymakers have responded with a variety of stimulus measures, including interest rate cuts from the central bank (the key short-term interest rate is at 1.8%) and a reduction of the stamp duty on stock trades by 50%.

Economic trends year on year:

Financial Markets

Equity: In August, the global equity market rally stopped. US equity performance was negative (S&P 500 -1.8% Nasdaq 100 -2.2%). Chinese stocks reversed their July gains (HSCEI -8.2%). Fixed Income: The 10-year US yield kept its upward momentum and gained 13bps to 4.09%, as opposed to the 10-year German yield (-3bps to 2.47%). The neutral market sentiment for risky assets left High-Yield bond prices in USD and EUR largely unchanged. Currencies: The USD continued to appreciate against most currencies in August amid rising USD interest rates: EUR -0.8%, GBP -1.1%, AUD -2.7%, CNY -2.5%, JPY -3.8%. Commodities: Gold lost 1.2%, weakened by higher USD interest rates. Oil prices kept rising (+2.2% MoM) as OPEC+ is expected to carry on production cuts.

Equities: Downward retracement on growth disappointments

Global equity markets declined in August, following a month of gains in July and a year-to-date performance above 10%. Western equity market valuations are elevated, but developed market economic data have been better-than-expected while artificial intelligence (AI) offers long-term growth potential.

In the US:

Expectations regarding forward corporate earnings and growth remain positive, strengthening the idea that a recession could be fully avoided in the US. At the end of August, the year-to-date performance of the S&P 500 was +17.4%, reflecting a resilient US economy, the anticipation of the end of the Fed’s rate hikes, and the potential of AI.

In Europe:

The EuroStoxx 50 index lost 3.9% in August, while UK stocks fell 3.4%. As European inflation remains elevated (+4.2%), growth anticipation is low, and there is still no end in sight for the war in Ukraine. European equity markets may trade sideways until year end, with potential volatility. The ECB and the Bank of England are likely to hike interest rates further, which may be an additional headwind for European equity markets.

In China:

Stocks retreated in China, giving back their gains of July, amid disappointing growth. With the government and central bank (PBoC) implementing economic and monetary measures to achieve sustainable growth (above 5%, quite high for Western standards), we believe the stock price downward retracement is an opportunity for long-term investors looking for asset growth, substantial income (around 4% dividend yield), and de-correlation with Western markets. Given attractive equity valuations and earnings upgrade expectations, we believe mainland Chinese and Hong Kong equity valuations are likely to substantially increase within the next 12 months.

Currencies: USD bearish trend to resume with volatility

The USD is losing steam as US economic data disappoints and the Fed announced the end of the interest rate hiking cycle.

EURUSD: Trendless and volatile within the [1.05; 1.10] range

Europe has low and declining growth (0.6%), still high inflation (5.3%), and geopolitical uncertainty with the war in Ukraine. In this context, where many outcomes are possible, we expect further currency volatility and the EURUSD to trade sideways.

USDRMB: Large economic differentials between the US and China to weigh on USDRMB

USDRMB is pulled by two opposite forces. On one hand, Chinese growth is lower than expected and the Chinese central bank (PBoC) is progressively lowering its key interest rate to underpin the economy: this has a short-term weakening effect on the RMB versus USD. On the other hand, the growth, trade balance, and inflation differentials (there is no inflation in China) are greatly in favor of the RMB: this has a structural, long-term, strengthening effect on the RMB. That is why we believe the bearish trend of the USDRMB may be about to resume, and may bring the USDRMB back below 7.00 within the next 12 months.

USDJPY: Ascending USDJPY alarms Japan

USDJPY rose to a 10-month high at 147.90. The short-term interest rate differential between Japan (-0.10%) and the US (+5.50%) is the main driver of the USDJPY strength. The market expects the Bank of Japan (BoJ) to intervene if the USDJPY goes back towards 150, its highest level over the past 40 years.

Fixed Income: Deposit rates and bond yields present an opportunity

Due to the massive government spending program in the US, the increase of US Treasury issuance propelled US government bond yields upwards in August. Fed Chair Jerome Powell communicated that Fed rate hikes are coming to an end. By contrast, central banks in Europe are not considering ending their rate hiking cycle yet. However, we note inflation is declining around the world. At some point in 2024, Western interest rates will start reversing and decline.

We believe there is a window of opportunity that we have not seen in the past 20 years where it is now possible to receive a decent income from cash deposits, with 3- to 6-month duration (5.5% in USD or 3.5% in EUR). High interest rates can be locked for longer periods by investing cash in bonds from large investment grade banks, which can provide an annualized yield of 6% net in USD or 4% net in EUR with duration of 2 years and above.


Oil: We note oil is well supported as OPEC+ is committed to restricting oil production. In this context, oil inventories are declining and oil prices rose 2.2% in August.

Gold: Central banks buying gold provides a “floor” to gold prices. Gold prices went down to USD 1,915/oz as US interest rates rose in August.

All central banks together are purchasing around 1,000 tons of gold per year, the highest pace in half a century, thus providing a “floor” to gold prices. We think this level may be a buying opportunity in front of what we believe is a bullish context for gold: US interest rates are stabilizing, USD will resume its bearish trend at some point this year, the geopolitical uncertainty remains elevated (US-China tensions, war in Ukraine), and central banks have an ongoing gold purchasing program to diversify from the sanction-prone USD.


  • Russia-Ukraine war escalation: A worsening of the war would affect Europe the most, and if the Russian army crossed the Belarus border, which is 150km north of Kiev, EURUSD could drop fast towards 0.90. In addition, the US and Asia could suffer a stronger economic slowdown amid surging commodity prices.
  • US-China tensions: US-China friction remains strong, with increasing tension around Taiwan and the South China Sea.
  • Recession:  So far, the US has escaped recession although growth has been tepid, while in Europe anticipated growth lies within the [-0.5%; +0.7%] range. By contrast, Asia is experiencing stronger, sustainable growth, fueled by China’s post-Covid recovery (5.5% expected growth for 2023). Depending on how corporates and governments navigate the new inflationary period with higher interest rates, recession remains a key risk to monitor.


  • USD deposits redeemable in gold: 10% net annualized in USD. As Central banks around the world keep on accumulating gold as an alternative to the sanction-prone USD, they provide a backstop to the level of gold. Concomitantly, their interest rate hiking cycle is coming to an end, which is likely to support gold. Deposits redeemable in gold enable investors to take advantage of the buoyant precious metal by receiving an interest above the market level, while bearing the gold downside risk.
  • Income from safe cash deposits: Cash can be safely placed in cash deposits and earn annualized net interest, e.g. over a period of 6 months: USD 5.50%, EUR 3.50%, GBP 5.25%.
  • Income from Investment Grade bank bond issuers: Major banks are implicitly protected by central banks as demonstrated in the Credit Suisse crisis where actual bonds (not AT1) remained secured. Bonds have already mostly integrated the central banks’ ambitious interest rate hiking cycle. Investors can enjoy a substantial yield from a diversified bank bond portfolio of 2-year duration: USD 6%, EUR 4%, GBP 6%.
  • Japanese yen: The JPY is extremely undervalued, close to a 30-year low. The anticipated change in BoJ’s monetary policy could trigger a re-appreciation of 10% to 15%.
  • Nuclear energy: We believe the nuclear sector will be instrumental in the world’s decarbonization efforts. To achieve fossil fuel reduction targets, the nuclear power industry’s safety standards need to be brought to the next level, for instance by using new technology to recycle uranium. New “green” nuclear energy is the number one priority of President Macron in France, while being high on the agenda in the US and China, which will build 150 nuclear power plants in the next 15 years.
  • Defense and security: The war in Ukraine has triggered massive investment in military defense and the overall security sector – including cyber, food, energy and semiconductor supply security – in Europe and around the world.