There was nowhere to hide for investors in October as major bond, equity and commodity index prices declined over the month.
Following the announcement of another negotiated withdrawal agreement, the likelihood of the UK leaving the EU without an agreement receded. Consequently Sterling rose to 1.30 (£ to US$) from 1.23 (£ to US$) at the start of the month. Given the political uncertainty over the coming months, possible future paths for Sterling are widespread. UK government bond yields increased as the immediate tail risk of Brexit was averted, with the 10 Year bond yield increasing to 0.6%. This resulted in the FTSE Actuaries UK Conventional Gilts All Stocks index losing 1.8% during the month. Within UK equity markets the FTSE All Share declined 1.4%. Impacted by Sterling’s 5.3% rise over the month the FTSE 100 fell 1.9% but the more domestically focussed FTSE 250 (excluding Investment Trusts) index rose 1.0%. The FTSE 100 has gained a modest 1.7% in capital terms over the past 12 months with a total return of 6.5%.
Ahead of the November meeting of Presidents Donald Trump and Xi Jinping, expectations are that partial conclusions of an interim trade agreement are close. US equities rose to another new high during the month, with investor optimism emboldened by a further interest rate cut. The S&P500 reached a high of 3,053 during the month and finished the period with a 2.0%1 gain. The US Dollar declined 2% against a basket of currencies and the US 10 Year Bond yield traded between 1.51% and 1.86%, eventually finishing the month at 1.69% up 0.02%.
As Mario Draghi handed the reins of European Central Bank presidency over to Christine Lagarde in October, he reiterated his call to (fiscal) arms from the Eurozone’s more prudent governments. Bond yields continued to rise from September’s lows as better than expected macro data was released and the tail risks of a global trade war seem to be alleviated. With US Dollar weakness during the month the Euro bounced against the US$ by 2.3%, finishing the month at 1.12 (€ to $). The MSCI Europe ex UK index rose 1.3%, as value stocks outperformed growth for a second month in a row.
China reported its economy is growing at an annual pace of 6% in October, its slowest pace for 3 decades. Undeterred and on expectations of more stimulus and better US relations, Chinese equities rose. These factors helped the wider MSCI Asia Pacific ex Japan and MSCI Emerging Markets indices to gain 2.9% in October. MSCI Japan returned 4.9% over the month, as the Bank of Japan hinted that it is willing to cut interest rates further. The main Japanese stock market index Nikkei 225 rose to a 12 month high as it was reported that retail sales increased 9.1% ahead of a new consumption tax rate implemented in October.
The 5% rise in Sterling in October translated local currency gains in US, European and Asia Pacific equity markets into losses for UK investors. Following reports that central banks are adding more Gold to their reserves the price of the yellow metal rose back above $1,500 (per oz), finishing the month +2.8% at $1,512 (per oz). As the world awaits the IPO of Saudi Aramco in November, the notoriously volatile oil price was rather subdued during the month, with Brent Crude rising 0.6% over the period.
Chief Investment Officer