October was a month of mixed fortunes for global equity markets. While Europe, the UK and the US enjoyed a recovery, Asia and Emerging markets lagged.
High inflation and central bank interest rate hikes continue to make headlines, with real fears growing around the potential for recession in many regions.
The cost-of-living crisis continues to impact consumer spending in many regions, with high prices showing few signs of letting up in the short term.
October saw a mixed bag of results for global equity markets. Europe rallied with all sectors finishing on positive ground. The UK recovered amid upbeat earnings and fiscal reassurance, while the US bounced back thanks to a strong quarter three earnings season. Elsewhere, Asia and Emerging markets were pulled back by the underperformance of Chinese equities. High inflation continues to be widespread as recession fears start to take root.
Despite inflation persisting and signs of economic slowdown, October was better for European markets, ending the month up. All sectors landed in positive territory.
The European Central Bank raised interest rates once again, as inflation hit a new high of 10%. The 1.5% interest rate is also the highest since 2009.
GDP slowed in the third quarter. Eurozone economists expect the region to fall into recession in the early part of 2023 as cost of living continues to pressurise household spending.
After a period of political turbulence, UK markets weathered the storm and ended October up. Liz Truss stepped down after just 44 days in charge and Rishi Sunak was appointed Prime Minister in her place. New chancellor Jeremy Hunt reversed the tax cuts announced by his predecessor, which served to soothe markets somewhat.
Inflation was up by 0.2% from August, above consensus estimates. This was mainly driven by the highest food prices since the 1980s. Retail spending was subsequently down, more than expected.
Unemployment at its lowest level since 1974 in the three months leading to August. Though the employment rate fell slightly in the same period, as well as vacancies, the latter is still close to record highs.
US equity markets rallied strongly in October. This came off the back of a stronger than expected quarter three earning season. Many businesses on major indices beat earnings estimates.
Inflation remains above consensus estimates. The Federal Reserve, who have already adopted strong hawkish stance are expected hike interest rates further in response.
Large US technology stocks suffered amid an otherwise strong earnings season. Alphabet (Google’s parent company) and Meta both reported losses, while Microsoft and Amazon experience slow growth.
In contrast with other global markets, Asian equities endured a tough month, ending down. This was largely driven by poorly performing Chinese equities, following the 20th Communist Party Congress.
Worsening Covid conditions, US restrictions on semi-conductor sales and geopolitical tensions were the main culprits. There was more positive news as quarter three gross domestic product (GDP) beat consensus estimates.
Elsewhere, Taiwanese stocks struggled, while Japanese and Korean stocks rebounded. Indian markets recovered slightly, despite muted macroeconomic data.
Emerging markets were impacted by underperforming Chinese stocks, ending October down. It’s no surprise that EM Asia was the worst performing region.
EM Europe, Middle East and Africa (EMEA) ended the month up. The CE3 (Czech Republic, Poland and Hungary) bounced back (except the Czech Republic which was held back by a decline in its currency). Turkey and Greece also enjoyed double-digit returns.
In EM Latin America, it was a similar picture. Brazil was the biggest outperfomer as it re-elected left leaning Luiz Inácio ‘Lula’ da Silva in place of a far-right incumbent. Mexico also boosted the region’s fortunes with robust revenues and a solid consumer sector.
Things were looking up for UK fixed income markets in October, after a difficult period. Sterling-denominated assets were positive, as were UK gilts after the government u-turned much of its ‘mini budget’.
Outside the UK, amid persistently high consumer prices in the eurozone and the US, markets looked to price in further interest rates hikes from both central banks. US treasuries German bunds struggled as a result. Early hopes that the Federal Reserve (Fed) would adopt a less aggressive stance to hike were quashed on the release of core inflation data.
UK bond markets also recovered after a very tough September. This came off the back of the expectation that the new government will be more fiscally responsible. Sterling credit and investment grade bonds led the way.
In ESG, October revealed that supporting the EU economy through the winter remains a priority. But when it comes to the energy crisis, the region is still some way off agreeing a management plan.
One of the biggest issues is that a price cap is still yet to be agreed for gas. This is despite 15 EU member states calling for an explicit cap. Pressure is mounting on the EU to find a solution to protect the region from further price rises this winter.
On regulatory and investment side, the industry is continually moving toward greater transparency in how ESG objectives are integrated into investment decisions. Recently released Global Real Asset ESG Benchmark (GRESB) insights are being used to engage with fund managers as a way to assess the performance of private real estate funds.
Monthly Market Roundup cov. October 2022
In the monthly market roundup for October, teams reflect on mixed fortunes for global stock markets. Europe, the UK and the US bounced back, while Asia continued to struggle.
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1A hawkish stance is one that believes in increased interest rates as a control measure for inflation.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Data as of 30 September 2022 unless stated otherwise.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.
Past performance is not a guide to future returns.
This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
