Concerns about global economic growth, increasing geopolitical instability and the increasing worry of the Ebola epidemic, has brought back volatility into the markets. This has caused steep falls in the first half of the month; however, most major indices have bounced back quickly towards the second half, following positive data and central bank actions which have stimulated growth. With these results most regions ended the month in positive territory.
US equity markets rose in the month of October and the S&P 500 Index increased 2.4%, this was mainly due to a response by the US Federal Reserve’s decision to end their bond-buying programme. This move has effectively brought the US economy back to normality, after the global financial crisis.
Volatility had risen in the approach to the Fed’s announcement, amid concerns that share prices would suffer if quantitative easing was brought to an end. Moving forward, there are fears over the global growth outlook and US equities have experienced losses not seen since May. This being said, the markets have recovered from these losses, because of the announcement of some solid economic data.
In Europe, equity markets were naturally impacted by the deteriorating outlook of the Eurozone economy. This data confirmed that German exports plunged in August and has intensified fears that the Eurozone’s largest economy may be slipping into recession. Market participants would like the European Central Bank (ECB) to go further with their quantitative easing efforts, but this would be met with significant opposition from Germany.
The equity markets rebounded later in the month, as more positive data came to the fore, while the conclusion of the ECB’s comprehensive assessment of 130 banks in the Eurozone also led to expectations that this may improve the flow of credit to the region’s economy.
The UK equity markets trended lower, despite the country’s positive economic outlook. The UK’s economy has rebounded from recession faster than expected. While this raises expectations that the UK’s interest rates will rise, there are still signs that the housing market may be cooling and has dampened these expectations. During the month, Britain was also asked to pay an additional EUR2.1 billion into the European Union’s budget, primarily due to its economy performing better than other European economies; but also as a result of changes after a once-in-a-generation review of how gross national incomes are calculated. This has put pressure on the UK government, which is seeking to reduce the magnitude of this bill.
Asian equity markets have recovered from early weaknesses, because of other regions growth fears. Whilst China’s third quarter GDP was lower in comparison to its second quarters, it still proved to be better than expected, which helped ease concerns of further deterioration in the economic outlook. Furthermore, sentiment towards Chinese equities was bolstered by the announcement of new policies, which were aimed at supporting consumption in areas such as broadband and mobile internet.
In Japan, concerns about global economic growth hit the earnings outlook of its exporters, thus causing the countries equity market to fall initially. However, a strong US Dollar has worked in Japan’s favour by strengthening the competitiveness of its products in the US, which is one of their key markets. All this led to the equity market closing the month in positive territory. In the Emerging equity markets, returns were led by Turkey, while early gains of Brazilian equities were eroded following the outcome of the presidential election.
Bond markets began the month strongly, because the market pushed out its expectations about the timing of US interest rate hikes. Further support for this expectation was found in the minutes from September’s Federal Open Market Committee meeting. Weaker economic and inflation data seemed to support this more dovish view.
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CEO
Kuala Lumpur : Malaysia
Stuart Yeomans 