Fund watch

What happened in Q3?

Here are some key themes from the third quarter of 2023:

US bond yields rise to pre-GFC levels: US bond yields rose sharply over the quarter with some hitting their highest levels since before the Global Financial Crisis. The rise in bond yields came in part as the US Federal Reserve (the Fed) reiterated it would be keeping interest rates higher for longer, raising its most recent ‘dot plot’ projection for the fed funds rate in 2024. The dot plot indicated the Fed will raise interest rates one more time this year, but only projected two interest rate cuts in 2024, which is two fewer than it forecasted in June.

Furthermore, bond markets had to adjust to a pickup in issuance (selling of bonds to raise money), especially as one of the historically biggest buyers of US bonds- China, scaled back its demand.

Oil prices surge after production cuts: The price of oil surged by as much as 30% over the quarter after Saudi Arabia and Russia said they would be extending their voluntary production cuts through to the end of the year.

The decision raised concerns of significant shortages heading into the final quarter of the year, which could weigh on global growth and add to already elevated energy prices.

During the quarter, most Western economies have seen the price of petrol at the pump increase.

The European Central Bank hikes, Bank of England pauses: The European Central Bank (ECB) lifted its key deposit rate 25 basis points to 4%, the highest level since the introduction of the euro in 1999.

Ahead of the meeting, there had been division over whether the ECB would lift interest rates, but, as with many other central banks, inflation concerns won out – and interest rates were hiked again. "Inflation continues to decline but is still expected to remain too high for too long”, the ECB said in its statement.

Meanwhile, the Bank of England (BoE) hit pause on its historic interest rate hiking programme. However, it was a close call with the nine-panel committee voting 5-4 in favour of a pause.

This article has been prepared by ANZ New Zealand Investments Limited (‘ANZ Investments’) for information purposes only and it should not be treated as financial advice.

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Investment and administration manager: ANZ New Zealand Investments Limited