Most equity markets recorded negative returns in September, while bonds denominated in US dollars and euros in particular lost significant value. These developments reflect growing concerns about rising inflation and the interest rate increases implemented by the major central banks. Attention is once again increasingly focused on inflation figures and the interest rate decisions of central banks.
Economic Growth: The Global Economy Remains Resilient
The global economy continues to grow, although momentum remains subdued and varies across regions. In Switzerland and the United States, both industry and services continue to develop positively. Europe is also continuing its gradual recovery. By contrast, the United Kingdom is losing momentum, while economic activity in China remains weak. Overall, business sentiment has improved slightly. In the United States, this is primarily driven by high levels of investment in artificial intelligence, while in Europe public spending is increasingly supporting economic activity.
Consumer sentiment, however, remains subdued by comparison. Although consumers are less pessimistic, they have not yet become optimistic. Ongoing price pressures continue to weigh on purchasing power and cause households to remain cautious.
Inflation: Upward Pressure Is Increasing
As a result of the current geopolitical situation, inflationary pressure has increased once again. Headline inflation rose in the euro area, the United Kingdom, China and Switzerland. Core inflation, by contrast, remained unchanged in the United Kingdom, declined in the United States and the euro area, and increased slightly in Switzerland and China.
As a result, the increase in inflation is more apparent in headline rates than in core rates. Second-round effects are therefore not yet evident. The key question will be whether higher production and transport costs are passed on to a broader range of goods and services. Should this occur, price pressures would become more widespread and entrenched, further limiting the monetary policy flexibility of central banks.
Monetary Policy: The Fed and ECB Raise Interest Rates While the SNB Continues to Wait
September was dominated by the interest rate decisions of the major central banks. While the Federal Reserve and the European Central Bank increased their policy rates, the Bank of England, the Swiss National Bank and the People's Bank of China left their rates unchanged. Inflation remaining above target and continuing to rise increased the pressure on both the Federal Reserve and the ECB to act.
The Swiss National Bank also refrained from a further rate increase. Compared with other central banks, however, the SNB remains in a more comfortable position. With inflation still within its target range, it assessed its current policy stance as appropriate.
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