Monthly Market Roundup cov. October 2023

In October, European equity markets fell due to weakening growth and diminishing consumer confidence. Key sectors, such as health care and consumer discretionary, underperformed, impacted by weak results and a declining consumer environment.

The European Central Bank maintained interest rates at 4.0%, reflecting concerns about weak growth in the eurozone. Eurozone inflation dropped to its lowest level in over two years, to 2.9% - this was more than consensus estimates.

In terms of economic growth, Spain and France experienced modest expansion. Meanwhile, Italy stagnated, and Germany, Ireland, and Austria all contracted, largely due to falling consumer spending and weakness in exports. Overall, the eurozone economy shrank over quarter three. 

In October, UK markets ended lower, influenced by stagnant growth and decreasing consumer confidence. Despite forecasts predicting a slight dip, September's inflation rate remained at 6.7%. High motor fuel and hotel costs offsetting a drop in food prices.

Between July August, the UK GDP increased by 0.2% following a 0.6% contraction the prior month, driven by growth in the services sector. However, uncertainty remains around a potential recession due to elevated prices and high interest rates.

Wage growth slowed, but remained ahead of price increases, softening the impact of higher interest rates on households. The IMF downgraded the UK’s growth forecasts for 2023 and 2024 due to persistently high inflation.

US equities started positively in October, but ultimately declined throughout the month. This was largely due to uncertainty around interest rates and the emerging conflict in the Middle East. Early in the month, sentiment was boosted by US GDP for Q3 coming in above consensus estimates.

October's labour market data reflected mixed results. While the Bureau of Labor Statistics reported 336,000 new jobs in September, surpassing previous figures and expectations, unemployment hit 3.8%, slightly above the anticipated 3.7%.

The September inflation rate was slightly higher than expected at 3.7%, strengthening beliefs that the US Federal Reserve may yet hike interest rates again. 

Asian equity markets fell behind developed markets with Indonesia, South Korea, and the Philippines performing the worst. Malaysia and Taiwan fared slightly better. All sectors were down, with industrials and real estate stocks suffering the most.

Chinese third quarter gross domestic product (GDP) came in higher-than-expected. Real estate woes and fears over the country’s stalling economic recovery prompted the International Monetary Fund (IMF) to downgrade their 2023 and 2024 growth forecasts though.  

Indian inflation still came in above expectations, despite falling. The Reserve Bank of India left interest rates unchanged. In late-October, foreign investors sold Indian stocks at their fastest daily pace in a year due to mixed earnings, rising oil prices among other concerns.

In October, emerging market (EM) equity returns struggled, lagging developed market peers. sentiment was weighed down by a few factors, including the conflict in the Middle East. Industrials and real estate stocks declined the most, while health care was the only sector to gain positive returns.

Latin America (LatAm) as a region was amongst the worst performers in October, with all countries registering negative returns. Brazil fared relatively better than its peers despite oil prices falling and mixed economic data over the course of the month.

In EM Europe, Middle East, and Africa (EMEA), Turkish equity markets had an unfavourable month. Turkish inflation rose to 61.53% from 58.94% the previous month and the central bank opted to raise interest rates for the fifth time since June.

A rise in long-dated borrowing costs weighed on the performance of bond markets, particularly US treasuries, which lost ground for the sixth consecutive month.

The belief that the European Central Bank will not raise interest rates further was bolstered by eurozone inflation falling to 2.9% in October, its lowest level for over two years. This helped sovereign bonds in the euro area to outperform.

It was a mixed month for corporate bond markets, with US investment grade the weakest.