Blair Campbell, MitonOptimal International (Guernsey)Global risk assets rebounded in October as the majority of equity markets globally were in the black with Japan (-1.4%) and South America (-5.3%) notable exceptions where inflationary concerns weighed on investor sentiment whilst political disruptions also impacted the latter. Economic growth data was encouraging particularly from a developed market standpoint, whilst 3rd quarter earnings reports were similarly supportive to equity markets. Against this backdrop developed market equities outperformed returning 5.7% over the course of the month, as measured by the MSCI World Index, whereas the MSCI’s Emerging Market gage returned 1.0%, both from a US Dollar perspective.

In the US, Congress voted to avert the debt ceiling crisis by pushing the deadline for a potential debt default until December approving legislation to temporarily raise the government’s borrowing limit to $28.9 trillion. GDP data for the 3rd Quarter disappointed somewhat coming in at an annualised 2.0%, its slowest pace post pandemic, however Purchasing Managers Index (PMI) data was more encouraging, October’s composite print of 57.6 signalled the fastest pace of private sector business activity since July. As at time of writing 459 companies within the S&P 500 Index had reported 3rd quarter earnings with 80.4% beating analyst estimates with expectations of earnings to be up 41.5% y/y. The S&P 500 hit record highs intra month whilst closing October up 7.0% on a total return basis.

Growth data in Europe was mixed, the euro area economy expanded 2.2% in the 3rd quarter as most Covid-19 restrictions were removed. Of the largest economies within the bloc France (+3.0%) and Italy (+2.6%) beat expectations on the back of a surge in consumer spending and the service sector whereas output data in Germany (+1.8%) and Spain (+2.0%) was below expectations with the former being effected by automotive sector weakness due primarily to semiconductor shortages. Of the companies to have reported from the STOXX 600 Index 64.5% have reported results exceeding analyst estimates.        Stocks in Europe as measured by the STOXX Europe 600 Index was up 4.7% on a local currency basis.

Policymakers in the UK have suggested a rate rise is looming  and at October’s close the market was pricing in a 64% probability of a 15 basis point rate rise at November’s Monetary Policy Committee meeting, brought forward from the market expectation of a March 2022 lift off. Labour market data in the UK remains on a positive footing, the unemployment rate has fallen to 4.5% whilst the Office for Budget Responsibility (OBR) revised its GDP growth forecast for the UK in 2021 to 6.5% from a previously forecast rate of 4.0%. The UK equity market as measured by the FTSE All Share responded accordingly increasing 1.8%.

Inflation expectations and the anticipation of interest rate hikes remain a catalyst for volatility within fixed income markets. Yields on core government bonds were no exception with the benchmark 10 year notes coming under pressure particularly in the US and Europe where the 10 year Treasury yield ended the month at 1.55% from 1.49% at open, whilst the move in Bunds were more pronounced moving from -0.20% to -0.11% at the close. High Yield was also in negative territory down -0.6% and -0.2% in Europe and the US respectively.

 


Source of all data: Bloomberg. The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.

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