Market Overview – September 2024

A wild ride from fear to serenity · 11 September 2024

From recession concerns to yen-driven sell-offs, markets bounce back with renewed hope for an US soft landing.  August turned out to be a challenging period for financial markets. The beginning of the month was marked by significant turbulence due to a combination of factors that shook investor confidence. The primary catalyst was U.S. labor market data, which came in well below analyst expectations. These triggered fears of an imminent recession and led to a massive sell-off in global equities, with markets dropping more than 10% in just a few days. The situation worsened with the unwinding of Japanese yen carry trades. Indeed, the unexpected decision by the Bank of Japan to raise its interest rates by 0.1 percentage points at the end of July caused a rapid rise in the yen. This appreciation of the yen, combined with rising Japanese rates and falling U.S. rates, made these carry trades much less attractive. As a result, investors quickly closed their positions, significantly increasing selling pressure on global markets, particularly in Japan.  Despite these initial shocks, markets found some relief when the Bank of Japan reassured investors by announcing a delay in its next rate hikes. This, along with more optimistic-than-expected U.S. economic data, helped to ease fears. The U.S. economy, although showing some signs of weakness, was supported by positive figures on inflation, unemployment claims, and retail sales. This bolstered the idea that the U.S. economy might achieve a near-ideal scenario where inflation continues to decline without stalling economic growth.  Although markets have recovered their losses, the cooling of the artificial intelligence-related euphoria, combined with speculation about a potential U.S. recession, continues to weigh on investor sentiment. Moreover, the investor reaction to Japan's first-rate hike highlights the fragility of global financial markets in the face of unexpected monetary policy changes.   

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