October Commentary
GLOBAL MARKETS
Investment sentiment continued to deteriorate as equities and bonds declined
Rising yields and weakening economic fundamentals unsettled investors
US MARKETS - Remained in risk-off as the S&P 500 fell sharply in the second half of the month
With core inflation topping 6.3% in August, ahead of consensus expectations of 6.1%, inflation appears to be migrating from fuel and food costs into other segments of the economy. In response, the Federal Reserve hiked the Funds Rate 75 basis points at the September meeting, in which Chairman Jerome Powell reiterated his hawkish stance. The labour market is still running hot, with two-times as many available jobs for every unemployed worker fuelling concerns about wage-cost pressures which have yet to emerge.
Down -9.3% (US 500)
EUROPEAN MARKETS - Inflation concerns remain at the forefront of European economic decisions
Despite posting quarter-on-quarter GDP growth figures ahead of the US, UK and China, inflation concerns remain persistent. Future growth forecasts have been curtailed and recession risk has risen, due to in part to the ongoing war in Eastern Europe, supply chain disruption, and tightening credit conditions. The European Central Bank (ECB) has signalled that it will continue to revise policy rates higher, with hikes at the October and December meetings likely. With energy and food markets tightening, and the Ukraine/Russia war set to escalate, risks appear skewed to the downside.
Down -6.6% (Euro 600 Index)
UK MARKETS - Recently announced government policy initiatives spooked the markets
UK Chancellor Kwasi Kwarteng announced a range of policy measures which jolted risk-assets into reversal, notably a £45 billion proposal of debt-funded tax cuts at a time when inflation is running dangerously high. UK 10-year gilt yields spiked more than 120 basis points to 4.6% in just four days, which prompted the Bank of England to intervene and state it would purchase bonds ‘at what scale is necessary’ to maintain bond market stability. In response to the volatility, sterling sold-off and traded at a 37-year low versus the US dollar.
Down -6.1% (UK All Share)
ASIAN MARKETS - Japanese equities outperform western counterparts on the back of a weakening yen
Japanese equities outperformed their developed market equity counterparts through the month, due in part to their accommodative monetary policies and weakening domestic currency. The Yen continued its slide versus all major currency pairs, notably nearly -4.2% against the dollar in September alone. The Bank of Japan governor, Haruhiko Kuroda, has signalled that it will maintain yield curve control for now and not hike rates, as current inflation remains well below the 2% target.
Down -6.5% (Japan Index)