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The end of September, Q3 09, was still full of activity with most western bourses closing in positive and higher territory than previous months. Notably, the FTSE 100 surged ahead by 21% over the period with risk appetite increasing because of continued talks of exit strategies, merger activity and sustained investor over-optimism. Stock rallies occurred based on hopes that the recession was over, positive words from Moody’s rating agency who stated that the UK was set to keep its AAA credit status despite spiralling debt, according to the Guardian as well as the return of multi-billion pound mergers on both sides of the Atlantic, inter alia. The Vix index illustrated this belief and lower fear factor by moving down lower levels to close the month just below 25.

The elections in Japan give way to the Democratic Party of Japan (DPJ) who according to the Economist, pledged largely to overhaul economic policy in exports, social safety nets and government spending with the aim to restore the economy to fuller capacity as it has stagnated since the lost decade of the 90s. The recent G20 summit in Pittsburgh gave rise to a number of pledges, according to the Economist, some of which included harmonising macroeconomic policies, replacing the narrow G8 with the G20 circa 2011, giving the BRICs a permanent seat at the table and greater voting rights. Also included was the joint agreement to sign up to a bonus accord which included the five British banks, RBS, Lloyds, HSBC and Barclays, preparing to apply G20 standards on disclosure of payments, bonus deferral and clawback to take effect from 1 January 2010 according to City AM. There was also the elevation of the Financial Stability Board (FSB) in taking a more leading role in co-ordinating and monitoring tougher financial regulations and to serve as an early warning system for emerging risks. This has been referred to as the so called fourth pillar of the modern global economy after the IMF, World Bank and WTO.

Merger/takeover activity was significant in the month. T-Mobile and Orange announced their intention to merge in a deal that would see them have 28 million customers, sales of £8.2bn as well as becoming the UK’s largest provider with circa 37% of the mobile market, according to the BBC. Kraft Foods launched a hostile bid for Cadbury at circa £11bn with bidding as high as 850p a share according to the Guardian. At the time of writing, there has been no further action. Disney tabled a bid for Marvel Entertainment, home of well-known characters such as Spider Man and X-Men, in a deal worth $4bn. The outcome, according to Disney’s CEO, Robert Iger, would be "significant opportunities for long-term growth and value creation" according to BBC reports.

For September, equity bourses closed up in positive territory, reflecting strong trading sessions with bullish sentiment being expressed in many sectors as well as reasons aforementioned. According to Bloomberg, the FTSE 100 closed up 4.6% in sterling terms at 5,133.9, having surged 21% over the quarter and breaking the psychological 5,000 barrier. The S&P 500 broad index closed 3.6% up in dollar terms at 1,058 while the tech heavy NASDAQ finished up 5.6% in dollar terms at 2,122.4 The FTSEurofirst 300 rose 2.6% in euro terms closing at 997 having surpassed the 1,000 mark earlier in the month. This, according to the FT, was due to positive sentiments expressed by Societe Generale who stated that banks were in a better than expected position to meet the European Central Bank’s new capital requirements. The Nikkei 225 was also down 3.9% in yen terms to close at 10,133.2, perhaps pricing in the change of government and the uncertainty. The Swiss Market Index ended up 1.7% to close at 6,323.18.

Emerging market indices, according to the Economist were up by 62% since the start of the year and show little signs of slowing down. The biggest of the BRICs, China, saw their composite index climb to a one month high at 31,767.7 according to the FT. This was largely due to funds returning that were previously frozen for the IPO of Metallurgical Corp of China. Brazil’s Bovespa received a boost as BG Group, Guara discovered oil off the Brazilian coast which contained up to two billion barrels of recoverable oil and gas, according to BusinessWeek. At the end of Q3 09, the Shanghai Stock Exchange closed up 4.2% at 2,779.4 in local currency terms. The Bombay Sensex closed up 9.3% in local currency terms at 17,126.8. Brazil’s Bovespa was up 9% in local currency terms to close at 61,517.9. MICEX, Russia’s stock index, was up 9.6% in rubles to close at 1,197.2

With respect to commodities, WTI crude oil was down 7/10ths of a percent at $70.61. Gold, the story of the month, marched confidently past the $1,000 mark due largely to renewed dollar weakness which saw investors rush into the safe haven of bullion. Bullish charts signals also triggered speculative flows into the precious metal, according to the FT, as well as worries over the re-appearance of inflation as central banks continued to pump cheap money into the system. Copper traded 4.6% lower at $6,159 per troy ounce with platinum up 4.8% for the month to close at $1,298 per troy ounce. Gold closed up circa 6% at $1,007.7 per troy ounce, according to Bloomberg.

Sterling again closed the month weaker against the benchmark currencies after warnings from the Bank of England that UK debt levels were not sustainable, according to BBC reports. It added also that foreign investors may not be as willing to buy UK assets which in turn would cause a sharp impact upon the pound’s long term exchange rate. As such, sterling closed down, circa 3.7% against the euro to close at 1.0937. It fell circa 1.65% against the dollar to close at $1.6016 and against the yen at 5% to close at ¥143.64.

The global economy had more bad than good news for the month of September. US unemployment rose 9.8%, continuing to add to the highest level in 26 years theory despite views that the recession is receding according to the FT. Eurozone prices fell to -0.3% from -0.2% with concern over the fall of the oil price and the state of the US economy, according to the BBC. The Institute for Supply Management (ISM) Index declined 46 as opposed to the 52 that was expected, anything beneath 50 representing a fall in factory output. This was due largely to views that economic recovery for the US would be slow and patchy according to the BBC. Conversely, the Purchasing Managers Index (PMI) for the eurozone rose to 50.4, indicating a rise in economic activity, albeit very small.

Expectation continues to be that the global economy is moving very slowly towards being recession free. It still remains too early to think of exit strategies from central banks and governments. Unemployment on both sides of the Atlantic remains a problem, house price volatility is still prevalent and there is still no economy that has managed to record, outside of France and Germany, consecutive quarters of GDP growth. It is believed that the headwinds blowing in the direction of positivity will continue but in small doses within the final quarter of the year and to the first quarter of 2010. It is an environment for the medium to long-term investor as opportunities are to be had in relatively cheap valuations globally as well as lower yields in government treasuries, higher commodity prices and a weaker dollar. Short-termists must not create mass hysteria of over-optimism based on itinerant stock rallies and bullish technical indicators as has been previously evident. Patience still remains critical.