October 2023 witnessed a dynamic and eventful month in the global financial markets. Concerns over the US Federal Reserve’s tapering plans, high inflation, and geopolitical tensions in various regions kept investors on the edge. Inflation remained a prominent concern, with central banks worldwide implementing strategies to bring inflation down to their long-term targets. There is a consensus among the experts that the eventual trickle-down effect of high interest rates on the economy, corporate earnings, and consumers has yet to materialise as these policy measures work in lags. October also marked the beginning of the corporate earnings season for Q3 2023. Several companies across sectors reported robust earnings, particularly in technology, healthcare, and some traditional industries.
Global equity markets remained negative in October amid fears of economic slowdowns and possible recession. Worries over China’s property sector poses another emerging challenge for global markets, which are already under pressure amid strict financial conditions i.e., rising bond yields, widening credit spreads, and tougher lending atmosphere. With Russia-Ukraine war in the background, the conflict in Palestine remained a focal point. The escalating conflict in Palestine between occupying Israeli forces and Palestinian population in Gaza and West bank poses a threat of widening battlefield to other neighbouring countries that can possibly push oil prices &/or gas prices much higher, hence making it difficult for central banks to tackle inflation.
Looking at the performance of major asset classes, equity markets ended the month in a negative territory given macro concerns as the ‘higher for longer’ narrative weighs on market sentiment. FTSE 100 was the worst performing index that went down 3.69%. The DJ Islamic market index and Japan’s Nikkei 225 both plunged by 3.14%. Europe’s Euronext 100 and China’s Shanghai Index both ended the month with nearly negative 3% return amid rising worries over slowing growth and wavering property market in China, the world’s second largest economy. The US broader equity market benchmark S&P showed some resistance but still managed to decline by 2%. On the commodities front, crude oil plummeted by 7.79% after a significant price hike in recent months, whilst gold rose by 7.3%.
News & Key Events in October
• The UK inflation rate remained stable at 6.7% in September 2023, holding at August’s 18-month low and defying market expectations of a slight decrease to 6.6%.
• The UK’s quarterly economic growth was confirmed at 0.2% during the second quarter of 2023.
• The US inflation rate remained steady at 3.7% in September 2023, as a softer decline in energy prices offset slowing inflationary pressures in other categories.
• The US economy expanded an annualized 4.9% in the third quarter of 2023, the most since the last quarter of 2021, above market forecasts of 4.3% and a 2.1% expansion in Q2.
• The unemployment rate in the US was at 3.8% in September of 2023, remaining unchanged from August 2023.
• The inflation rate in the Euro Area declined to 2.9% year-on-year in October 2023, reaching its lowest level since July 2021.
• The European Central Bank kept interest rates at multi-year highs during its October meeting, marking a noteworthy shift from its 15-month streak of rate hikes and reflecting a more cautious “wait-and-see” stance among policymakers, influenced by the gradual easing of price pressures and concerns about an impending recession.
• The Euro Area economy shrank 0.1% on quarter in the three months to September 2023, worse than market forecasts of a flat reading.
• China’s consumer prices remained unchanged in September 2023 from a year earlier, following a 0.1% rise in the previous month.
• The People’s Bank of China (PBoC) held steady lending rates in October, as widely expected. The one-year loan prime rate (LPR), which is the medium-term lending facility used for corporate and household loans, was left unchanged at a record low of 3.45%; and the five-year rate, a reference for mortgages, was maintained at 4.2% for the fourth straight month.
• The Chinese economy grew by a seasonally adjusted 1.3% in Q3 of 2023.
• The annual inflation rate in Japan fell to 3% in September 2023 from 3.2% in the prior month, pointing to the lowest reading since September 2022.
• The annual inflation rate in Canada declined to 3.8% in September of 2023 from 4% in the previous month.
• The Bank of Russia raised its key interest rate by 200bps to 15% in its October 2023 meeting and signalled that monetary policy will remain elevated for a prolonged period to fight against inflation. The annual inflation rate in Russia rose to 6% in September of 2023 from 5.3% in August, the highest since before base effects from the Russian invasion of Ukraine ended in February.
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