You are using an outdated browser. Please upgrade your browser to improve your experience.
Article | 09 November 2021 | Investments
October was a good month for equities, particularly in the US where markets had their best month of the year. Against the backdrop of a strong earnings season, the S&P 500 gained 6.9% while the tech-heavy Nasdaq rose 7.3%. It was a similar picture in Europe, with the Euro Stoxx 50 finishing October 5% higher, while the UK’s FTSE 100 was up 2.1%. Asian and emerging markets were also broadly positive, and the MSCI China index gained 3.1%. The outlier was Japan, which lost 1.4% over the month.
US Treasury bond prices continued to edge lower in October. The markets considered the possibility of upcoming interest rate rises and the withdrawal of pandemic-era support from the US Federal Reserve. European government bond prices saw similar downward pressure, even as the European Central Bank (ECB) attempted to play down the chances of a rate hike. In corporate bond markets, investment grade bond prices were slightly higher in Europe but lower in the US, while high yield bond prices were lower in both regions.
Sterling was the standout developed market currency in October, rising against the euro, US dollar and Japanese yen. The euro had a tough month, falling against the pound and dollar on the back of record-high inflation readings. The US dollar was weaker versus sterling, but gained ground against the euro and the yen. And the yen had a poor month, falling against its major counterparts as the price of imported energy – on which the Japanese economy relies – continued to climb.
The oil price continued to rally in October as global energy prices soared. Brent Crude gained another 7.5% to finish at $84.40 per barrel, after touching a three-year high. Gold, which is considered by some as a hedge against inflation, also had a good month. It rose 1.5% to $1,783 per ounce. Industrial metals, including copper, also rose over October.
Stock market volatility cooled off in October, after a tumultuous September. The VIX index of stock market volatility started the month at 23.1, but fell gradually over the following weeks to finish at 16.3.
In the lead-up to the COP26 climate summit in Glasgow, the G20 group of countries met in Rome at the end of October. The countries approved an historic corporate tax deal, which will see global companies pay a tax rate of at least 15%. Leaders also discussed the issue of climate change. They committed to reaching net-zero emissions “by or around mid-century”, rather than the specific 2050 date that was announced previously, while also agreeing to stop funding overseas coal plants by the end of 2021.
The UN Climate Change Conference, or COP26, began in Glasgow, with the agenda for the two weeks of meetings focusing on more ambitious targets for net zero emissions, an end to deforestation and a significant reduction in the use of coal for power production, as well as the promotion of renewable alternatives.
Stagflation remained high on the macroeconomic agenda. Third quarter GDP fell short of forecasts in both the US and China, while soaring energy costs and supply chain bottlenecks forced prices higher. In China the PPI rose at the fastest rate since 1995, while US September headline PCE inflation, the Federal Reserve’s targeted measure, hit 4.4%.
On the corporate front, the US earnings season proved very strong, with a majority of companies beating analysts’ forecasts. Elsewhere Evergrande, the embattled Chinese property giant, met an outstanding payment on its overseas debt at the eleventh hour, in line with the insistence of the Chinese authorities.
The Bank of England looks set for a period of rising interest rates, following tightening moves by Norway, South Korea and Canada. The US Federal Reserve’s outline of plans for tapering its pandemic bond buying programme will be closely examined for hints that inflation might yet prove to be more enduring than transitory.
The resolutions signed up to at the COP26 Climate Change Conference will be further explored and action plans agreed. Meanwhile the OPEC+ group of oil producers looks likely to continue to unwind production cuts, agreed following pandemic lockdowns last year, and the opening of the Nord Stream 2 pipeline from Russia could finally receive German approval.
The recent surge in cases of Covid-19 in Europe could become more widespread across the Northern Hemisphere, as winter sets in. Booster programmes will be rolled out to the elderly and vulnerable, while increasing rates of infection among children could move some populations towards theoretical herd immunity.