Economic Commentary – October 2018

November 1st, 2018, by Martyn Torevell

October saw sharp falls in global equity markets with the MSCI World index down by around 5.4% over the month in Sterling terms. The FTSE 100 index fell below 7,000 during the month before recovering slightly to finish October at 7,128. The S&P 500 index fell by 6.9% in US Dollar terms whilst the MSCI Asia-Pacific ex Japan and Japanese indices fell by more than 9% in local currencies.

The continuing weakness of Sterling reduced these losses slightly for UK investors. All major global equity indices are down in value over the last 3 months, and with the exception of the S&P 500 index, are down since the start of the year. Foreign exchange movements have helped convert a modest 2.5% gain in Dollar terms to a gain of 8.6% in Sterling. In contrast Asia-Pacific ex Japan and emerging market indices are down by more than 10% since the start of the year.

A number of factors are likely to have contributed to the falls. The IMF downgraded its global growth forecasts for 2018 and 2019 (from 3.9% to 3.7%), citing the introduction of import tariffs between America and China, weaker growth in Europe, Japan and the UK, and the impact of rising interest rates on some emerging markets.

Strong economic growth in America may also have played a part and the decision of the US Federal reserve to increase interest rates had an impact on currency markets and has increased the borrowing costs of many emerging economies.

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