Equity markets stabilised somewhat during October, with the MSCI World Equity Index rising 3.9% and the FTSE 100 gaining 3.0%. The VIX index, which is traditionally referred to as the fear index for US stocks, fell back 16% but still ended the month at a relatively elevated level of 26.1, suggesting investors remain cautious.
Equities recover but inflation persists
Kwasi Kwarteng is dismissed as Chancellor of the Exchequer. He becomes the second shortest-serving Chancellor in UK political history. Jeremy Hunt succeeds him. Later in the month Hunt delivers an emergency statement to the Commons, in which he announces that the government "will reverse almost all the tax measures" from the mini-budget.
Liz Truss announces her resignation as Prime Minister after just 45 days. Her tenure will be the shortest of any Prime Minister in UK history.
Rishi Sunak becomes the next Leader of the Conservative Party. He promises to "place economic stability and confidence” at the heart of this government's agenda.
The Bank of England warns of a "material risk to financial stability”, as the government's borrowing costs rose sharply again. Borrowing costs fell later in the month but remain high compared to much of the past decade.
Inflation in the UK rose slightly, back to its July level of 10.1%, up from 9.9% in August. US annual inflation fell slightly to 8.2%.
More than 50,000 rail workers go on a 24-hour strike, the biggest rail strike in Britain for decades, with, at one point, only 11% of train services running in the UK.
The European Central Bank hiked interest rates by 0.75%. The UK Monetary Policy Committee and US equivalent did not have a schedule meeting during October.
Falling demand caused the price of copper to fall for the seventh month in a row, which hasn’t happened since 1997.
China's leader Xi Jinping secures third term.
FAANG stocks Meta Platforms, Amazon and Alphabet fall sharply following release of disappointing Q3 results.
Elon Musk completes his deal to purchase Twitter.
Inflation remained persistently high with the UK annual rate rising back up to 10.1% and the US rate only falling slightly to 8.2%. The US reading was higher than expected so initially led to a market selloff. The narrative then changed dramatically as the market decided it was actually good news, showing that inflation had peaked, and US equities rebounded although some of this may have been institutional investors covering their short (negative) positions.
There was no increase in the key policy rates for the US and UK during October as there were no scheduled meetings for the UK Monetary Policy Committee or the US Federal Open Market Committee during the month. However, the European Central Bank did hike interest rates by 0.75% and stated that it "expects to raise interest rates further".
UK government bonds bounced back strongly as new UK Chancellor Jeremy Hunt announced that the government "will reverse almost all the tax measures" from the recent mini-budget. The markets also took comfort in Rishi Sunak’s announcement as the new Prime Minister following Liz Truss’s resignation whilst the Pound enjoyed a better month, as it rose 3% and 2.2% versus the USD and Euro respectively.
A large number of US companies reported third-quarter earnings during the month. It has been a mixed bag so far with some stocks remaining resilient against the headwinds of slowing global growth and persistent inflation. However, the market punished any company that missed both earnings and sales estimates. Meta Platforms, which is the parent company to both Facebook and Instagram, reported its second quarterly earnings fall in a row. The company also highlighted a host of economic and business challenges, which caused its share price to slide 25% on the day following the release of its results and left it down almost 75% from its all-time highs. A disappointing sales forecast from Amazon caused its share price to plummet. The shares ended the month down over 9%. Alphabet, the parent company of Google, and Microsoft also saw their share prices slide after they reported less revenue than analysts had been expecting. The tech heavy Nasdaq 100 index still eked out a small gain during the month, but it underperformed the wider market.
The decline for Chinese equities continued during the month, with the MSCI China Index dropping over 19% as the country’s leader Xi Jinping cemented his control over the ruling Communist Party.
The price of a barrel of WTI bounced 7.7% after four months of falls, which helped energy stocks to strongly outperform. During the month OPEC called for trillions of dollars’ worth of investment in the oil industry over the next two decades. Elsewhere in the commodity space, copper futures slipped in October to mark seven months of consecutive declines. Demand continues to fall on fears of a global recession and a property slowdown in China.
Although equities bounced back somewhat in October, it feels as though we do ideally need the central banks to start to change the rhetoric on raising interest rates, for the recovery to persist. A “Fed pivot” does not seem likely until inflation is meaningfully lower and we have some evidence of equilibrium in the jobs market. Things could move quickly though, as we saw early in the month that a little bit of bad news (US new job offers were 1 million below the previous month) was interpreted by the market as good news, as it showed the Fed that their higher interest rates were starting to cool demand, and therefore hopefully we are moving closer to them stepping back from their rate rising policy.
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