FirstFT: Stocks and bonds on course for the worst month of 2023

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US stocks and government bonds are on course for their worst month of the year as investors respond to the Federal Reserve’s message that interest rates are set to stay higher for longer than previously thought.

Wall Street’s benchmark S&P 500 stock index has fallen more than 5 per cent in September — dragging it towards its first quarterly loss in 12 months. 

The US bond market retreat accelerated last week after the Fed signalled it would cut rates much more slowly next year and in 2025 than investors had been pricing in.

The yield on 10-year Treasuries, which rises when prices fall, hit its highest level since 2007 yesterday and is on track for the biggest monthly jump in a year.

Global dealmaking has suffered too. It is languishing at a 10-year low as high interest rates chill private equity activity and a more hostile antitrust environment deters companies from pursuing rivals.

At $2tn, the value of merger and acquisition deals announced in the first nine months of the year was the lowest since 2013 and down 28 per cent in the same period in 2022, data from the London Stock Exchange Group shows.

Here’s what else I’m keeping tabs on today:

• Economic data: The US will release the final gross domestic product figures for the second quarter. Economists say the US economy’s resilience is showing signs of cracking under the weight of higher interest rates.

• Interest rates: Mexico’s central bank is expected to hold its benchmark interest rate steady at 11.25 per cent.

• Monetary policy: Federal Reserve chair Jay Powell addresses a conference in Washington and Fed governor Lisa Cook will speak at an event hosted by the Dallas branch of the US central bank.

• Politics: US president Joe Biden will be in Arizona to deliver a speech on democracy in honour of former senator and ex-Republican presidential nominee John McCain.

Join us at FT Professional’s first webinar at 1pm BST today. Journalists and industry leaders will look back on how predictions for 2023 have unfolded and discuss looming global challenges. Sign up here.

Five more top stories

1. Exclusive: OpenAI is in advanced talks with former Apple designer Sir Jony Ive and SoftBank’s Masayoshi Son to launch a venture to build the “iPhone of artificial intelligence”, according to three people familiar with the plan. Son, Ive and Sam Altman, OpenAI’s chief, have discussed creating a company that would draw on talent and technology from their three groups. Read more on the project and how it will be funded.

• More tech news: Meta is launching AI-driven persona chatbots across Instagram, Facebook and WhatsApp, the US tech giant announced at its developer conference yesterday.

2. Republican candidates led by Ron DeSantis and Nikki Haley sharpened their attacks on Donald Trump and each other during last night’s presidential debate at the Ronald Reagan presidential library in Simi Valley, California. Trump was absent from the stage, choosing instead to address autoworkers at a rally in Michigan. Here’s more on the sometimes chaotic debate.

3. Taiwan’s president has unveiled the country’s first domestically built submarine, demonstrating its determination to push back against growing military pressure from China. Completion of the vessel, which has taken almost seven years at a cost of NT$49.4bn ($1.5bn), is a milestone for Taiwan, which has struggled for decades to buy submarines and acquire the technology to build them.

4. IBM’s former IT services unit is planning to split off its China business in the latest sign of how geopolitical tensions and Chinese data laws are forcing multinationals to rethink their global footprint. US-based Kyndryl, which was spun out of IBM in 2021, has told some employees about the decision to split, according to three people with knowledge of the matter.

5. A jailed Russian oligarch is seeking almost $14bn in damages in London’s High Court from defendants including US private equity group TPG over an alleged Kremlin-led conspiracy to seize his assets. Lawyers for Ziyavudin Magomedov claimed in filings made public this week that TPG founder David Bonderman was part of a conspiracy to sell a stake in Fesco that their client was entitled to. Here’s more on the claims.

Today’s big read

The stream of migrants heading to New York City — more than 118,000 since the spring of 2022 — shows no sign of waning. The decision by southern Republican states to bus migrants to northern Democrat-controlled cities has created an existential crisis for the Biden administration and its supporters. The effects are felt no more acutely than in New York.

We’re also reading and watching . . . 

• ‘As bad as it gets’: A sweeping judgment in a fraud case against Donald Trump’s real estate business has raised the prospect of forced disposals — including of Manhattan’s Trump Tower.

• Argentina: Economists warn the country may enter a period of hyperinflation following election giveaways and a pledge to dollarise the economy.

• 🎬 Chips war: Our latest FT Film explores China’s rise as a technological superpower, and whether the US can regain the upper hand in the race for semiconductor supremacy.

Chart of the day

Demand for oil in China has trebled over the past two decades but is now getting close to an inflection point. Whether demand peaks this year, next year or by the end of the decade no one knows but experts do agree that the moment is approaching. What does that mean for the global oil and gas industry? Greg McMillan in Hong Kong reports.

Take a break from the news 

Who do you know who doesn’t use email? With more than 4.3bn users globally and growing, the medium has endured despite high-profile mishaps and the rise of social media, writes Sarah Ebner, head of newsletters at the Financial Times. Here’s why we just can’t quit email.

Speaking of emails, thank you for reading this one. Before you go, tell us what you think of FirstFT by emailing [email protected] or hitting reply — Gordon

Additional contributions from Tee Zhuo and Benjamin Wilhelm