Equity markets were weaker in October. The MSCI World ex-Australia Index (Hedged) fell slightly (returned -0.9%). Economic data in the US lowered expectations for the size of rate cuts by the US Federal Reserve. Uncertainty surrounding the outcome of the US election may also have contributed to weaker equity market returns.
USA
US equities were in line with broader Developed Markets. The S&P 500 returned -0.9%. Volatility on 31st October resulted in generally flat returns.
Missed earnings guidance from some large cap technology stocks shifted sentiment, along with some uncertainty about the US election outcome. The US earnings season has otherwise been reasonable and likely reflects the ongoing strength of the US economy.
Europe
The MSCI Europe Index underperformed Developed Markets (returned -3.3%). Concerns about the US election and about the economic outlook for Eurozone countries resulted in equity market underperformance.
Inflation was close to 2% and the European Central Bank reduced interest rates by a further 25bps.
Asia
In Asia, Chinese equities were weaker (-5.6%), having materially outperformed in the prior month. Investor sentiment dropped despite the stimulus measures announced in September, with concerns around the property sector and economic growth continuing to impact market performance.
Australia
The Australian equity market was also weaker (-1.3%) and underperformed Developed Markets. The Financials sector was strongest (3.3%) and Utilities and Consumer Staples were 2 of the weakest sectors.
The Reserve Bank of Australia (RBA) left interest rates unchanged, stating that the upcoming end of temporary cost of living measures could put pressure on inflation next year. This was in spite of the RBA also noting that headline inflation fell and monetary policy was restrictive enough.
Currency and bonds
Global bond returns were weaker over the month (-1.5% (hedged)). Australian bond returns were also weaker (-1.9%). US bond yields were higher, with the 10-year yield rising 50bps to 4.28%. The rise in yields reflected positive economic data. Expectations for interest rate cuts in the US were lowered, which increased the yield differential against other geographies.
The Australian 10-year government bond yield rose 53bps to 4.51%.
The Australian dollar was weaker against the Euro and Pound Sterling. It was also weaker relative to the US dollar, falling -5.6%. This is probably because of rising US bond yields and expectations of the US election.
Read the September 2024 Market Commentary.