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Archinomics Monthly - October 2023

one month ago

the
MARKETS

Equities

Global equities fell, with the MSCI World Index returning -3.0%, as sentiment was undermined by the conflict in the Middle East. US shares slid 2.2% (S&P 500 Index), briefly falling into correction territory having declined at least 10% from their peak at the end of July. European stocks dropped 2.7% (EuroStoxx 50 Index) while Japanese shares fell 3.0% (TOPIX). Chinese equities also declined, with the CSI 300 Index dropping 3.2%, taking it to its lowest level since 2019.

Bonds

Global bonds were mixed. US bonds sold off (10 year Treasury -2.2%) as the Federal Reserve (Fed) continued to indicate that the unexpected strength of the US economy might mean it needs to increase rates further. In contrast, German bonds rose modestly (10 year Bund +0.6%). Eurozone inflation came in below forecasts in October and economic activity remains weak at best, prompting speculation that the European Central Bank (ECB) may no longer need to raise rates.

Currencies

The US dollar and euro strengthened against the Japanese yen. The ECB kept rates on hold in October and the Fed is widely expected to do the same at its meeting in early November, although there are continued suggestions that rates could rise again in December. Meanwhile, the Bank of Japan announced it was amending its yield curve control policy to allow the 10 year Japanese government bond yield to rise as high as 1.0%.

Commodities

Oil prices surged as the conflict in the Middle East raised fears that supply could be disrupted, but later lost these gains to close the month lower. Brent crude dropped 8.3% to close at $87.4 a barrel. Gold approached $2,000 a troy ounce, closing the month 7.3% higher on rising demand for assets considered to be safe havens.

Market Volatility

Market volatility

Volatility rose 3.5% over October, with the Vix Index closing at 18.1. Nevertheless, the Vix Index remained below the 20 level which is usually viewed to be an indicator of market stability.

Responsible investing

The UK hosted the world’s first safety summit on artificial intelligece (AI) at Bletchley Park, the site of the Enigma code breaking efforts in WW2. The summit attracted wide attendance, with 28 countries including the US, UK and China agreeing to co-operate to ensure AI is used in a “human-centric, trustworthy and responsible” way.

IN
BRIEF

Tensions mounted in the Middle East, sparking fears of a broader conflict in the region. Financial markets responded, with equity markets dogged by uncertainty, while gold performed strongly. The price of oil actually fell after the rally seen in September.


In the US, the Speaker of the House of Representatives was ousted after agreeing a deal with the Democrats to avoid a federal shutdown. For much of October, US Congress was at an impasse, unable to pass any legislation until a new speaker was voted in. After several attempts, a Republican hardliner became the new speaker.


The US economy continued to show unexpected strength, given the sharp rises in interest rates over the past year or so. Third quarter US GDP is estimated to have grown by an annualised 4.9%, driven by robust consumer spending.


What?

on the
RADAR

After the Chinese economy expanded by a stronger-than-expected 4.9% year on year in the third quarter, further data suggesting that the slowdown in China’s economy may have bottomed out will be eagerly anticipated. Nonetheless, early surveys of economic activity in October have proved disappointing.


US policymakers have previously indicated that they expect one more rate hike before the end of the year but the recent sharp rise in long term US bond yields could mean this is no longer needed.

A new shutdown deadline is looming, as the US Congress only succeeded in postponing the debate on government spending until mid November. The last minute deal averting a federal shutdown in early October provided a short-term solution by avoiding aid for Ukraine.

 

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