Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

BACK to school and the nights are drawing in. No surprise then that August’s mini-rally has run out of steam and the traditional seasonal worries that September and October bring to the markets are back.

Pause for breath

After a string of weekly gains, the US markets have fallen back again with the S&P 500 down 1.3% and Nasdaq 1.9% off over the course of the post-Labor Day week.

The main driver, as usual, has been the ebb and flow of concerns about interest rates. Although the US economy looks like it is heading for a softish landing next year, the price to be paid is likely to be higher for longer interest rates. The consensus is now that the Fed will hold fire at its upcoming September rate-setting meeting, but comments from senior officials this week suggest it’s far from certain that we’ve yet reached the peak.

US interest rates have risen from just above zero to nearly 5.5% in only 18 months but no-one’s writing off one more hike in November - by which time the Fed hopes it will have a bit more clarity on what the cumulative impact of all these hikes will have been.

The key data point this week guiding the Fed’s thinking about interest rates will be Wednesday’s inflation print in America. Although inflation has fallen faster in the US than elsewhere - notably here in the UK - prices are still rising much faster than the Fed’s 2% target.

China’s long shadow

The second big driver of recent weakness has been the increasingly long shadow that China is throwing over global markets. In part, the problem is political. A Wall Street Journal story about bans on iPhones for state employees, rattled Apple’s shares and it ended the week worth $200bn less than it started. China represents about a fifth of the company’s revenues and Apple is the biggest contributor to the market-capitalisation-weighted US benchmark index.

But the Chinese economy is a headwind too. Latest data showed new home sales slumped by a half in the first week of September as the country’s important property sector remains on its knees. And exports have now fallen in each of the last four months, prompting big cuts in growth forecasts for the world’s second biggest economy.

China’s economy grew by 10% or more every year from 2003 to 2010 but the official target is now half of that and even achieving 5% growth looks to be a stretch. Having resisted the temptation to provide further stimulus, Beijing is now enacting a raft of measures to bolster activity.

Europe’s dilemma

Meanwhile, closer to home, the other main focus of attention will be what the European Central Bank does on Thursday when it meets to set interest rates. The ECB now faces a dilemma. With inflation still well above target, the case can be made for further rate hikes from the current 3.75%. But with German industrial production flagging and a rising oil price and rising wages threatening growth, some observers think the moment to tighten policy further may have now passed.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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