October Commentary
GLOBAL MARKETS
After a slow start, amid global growth concerns from weak US jobs data, the markets rebounded, driven by a 0.5% Fed rate cut and a 0.25% ECB reduction.
US MARKETS
First Fed rate cut of the cycle boosted markets
US markets closed higher across the board, led by large-cap growth. Tesla, Amazon, and Meta posted strong gains, with the rate cut boosting optimism. Consumer Discretionary led sector gains (6.9%), followed by Utilities (6.5%). Energy was the laggard, down 2.8%, due to a weaker oil price. The Russell 1000 Growth Index added 2.3%, while the Russell 1000 Value Index gained 0.9%. The domestically focused Russell 2000 Index, comprising the smallest listed US stocks, returned 0.3%.
Up 2.0% (US 500)
UK MARKETS
Weaker on energy prices and budget uncertainty
UK mid-cap stocks outperformed a weak FTSE100, with value leading growth. Weaker energy prices, and a softer dollar, weighed on the major oil stocks, while disappointing drug trials sent AstraZeneca, the FTSE's largest stock, down 13%. Economic data was mixed overall, with weaker business and consumer confidence somewhat offset by lower unemployment (4.1%) and positive GDP growth. The pending initial Labour budget added a touch of uncertainty to UK markets.
Down -1.4% (UK All Share)
EUROPEAN MARKETS
Recovered from early month lows
Despite the second rate cut from the ECB during this cycle, European stocks closed the month relatively flat. Data continues to point towards economic softness, with German industry labouring under high energy prices. Profit warnings from several major motor manufacturers, including Mercedes, BMW, and Stellantis (Fiat/Chrysler), citing weak Chinese demand, created a headwind for large cap stocks. Value outperformed growth, while mid-cap outperformed both large and small caps. The market recovered from the early-month lows, which had seen declines of nearly 6%.
Down -0.4% (Euro 600 Index ex UK)
JAPAN MARKETS
The announcement of a new PM roiled the markets
The yen’s recovery continued, but at a slower pace after the recent strong bounce. The traditionally more ‘export heavy’ Nikkei modestly outperformed the TOPIX, as profit taking impacted both into month end. Both major benchmark indices had posted +2% gains by 27th September, but were dragged lower by the announcement of a new - monetary and fiscal hawk - PM. Small cap sold off slightly less, and ended the month as the better performer.
Down -2.5% (Japan Index)
Key Points
• The Bank of England’s decision not to cut rates, unlike the Fed and ECB, boosted the pound to its highest level versus the dollar since Q1 2022. At $1.34, it remains far from the lows of $1.08 set in September 2022.
• The Chinese currency has also been making progress versus the dollar - from lows of Yuan7.3/$ a year ago – to recently trading near Yuan7.01/$.
• As the interest rate gap between the US and Japan narrows, the Japanese yen is outperforming the US dollar. With the rates gap expected to close further, this trend could continue.
• On a trade-weighted basis, the dollar has declined around 6% over the last 12 months. The dollar index is trading just over 101 from 114 in Q4 2022.
Key Points
• Despite rate cuts boosting sentiment, bonds had a mixed month, with investment grade credit spreads returning to post-COVID lows.
• High Yield credit spreads are also now near post-COVID lows, but still offer around 3% more yield than equivalent-maturity government bonds.
• Yield curves continued to normalise, with shorter rates falling in response to central bank moves, and some longer rates rising. Index-linked gilts experienced modest declines.
• Italy and Spain have performed well over the past month and year. Concerns over French politics and budget issues have caused French yields to rise, matching Spain’s for the first time since 2007.
• Emerging Market debt continues to perform well, posting gains of nearly 17% (in dollar terms) over the past year, as risk aversion has moderated.