Market Pulse - October 2022

Key themes

  • Despite global equity and bond markets reaching new year-to-date lows during October, both rallied to finish the month higher, with equities in particular generating strong gains.
  • Continued upward surprises in inflation readings and hawkish rhetoric from central banks contributed to the initial falls.
  • Equity markets established a floor before bonds, with early third-quarter earnings results ahead of expectations, while key technical levels also provided support. A slight change in tone from global central banks, and the resultant renewed speculation about a possible policy pivot, was a key catalyst behind the late-month rally.

 

Markets snapshot

  •  The MSCI AC World equity index rose 6.1% (5.1% in euros).
  • US equities rose 7.9% (7.0% in euros) on suggestions the Fed could begin to slow the pace of interest rate rises from December.
  • European equities also outperformed, rising 7.2% (6.6% in euros) as the European Central Bank (ECB) suggested the scale of interest rate rises could be lower than previously indicated.
  • Pacific Basin equities underperformed, rising only 0.6% (-0.4% in euros) as Hong Kong was sharply lower due to a disappointing interpretation of the future policy path after the 20th Chinese Party Congress.
  • Emerging market equities also lagged, falling -2.6% (-3.9% in euros), for similar reasons.
  • The Eurozone >5-year bond index rose slightly, by 0.3%. German 10-year yields initially rose to 2.53%, the highest since 2011, as investors feared ongoing tightening of monetary policy in a persistently high inflation environment. Yields, however, fell into month end as global central bank rhetoric became less hawkish.
  • The euro rose slightly, by 0.8%, against the dollar to 0.9887.
  • Commodities rose 6.7% (5.8% in euros). Brent oil rose 8.9% as OPEC+ announced plans to cut production by 2 million barrels per day to support the oil price.
  • Gold was down -1.5%, with the initial strength in the US dollar acting as a drag.

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