October was a volatile cocktail of geopolitical and macroeconomic uncertainty.
These were, and continue to be, exceptionally anxious times and nervy markets. We now have multiple global concerns, from the health of markets, China's continued contraction, central bank actions, to the unknowns of a potential escalation of the Israel-Hamas war.
For markets, this mix proved to be a horrid start to the month as bond yields rallied, and we saw a 'bond fire' rip through markets. US bond yields were at their highest for years, and the 10-year Treasury hit 5% for the first time in 16 years. This uncertainty only increased on 7 October when Hamas launched its offensive into Israel.
The VIX has for months sat subdued, below its long-term average, but is now back above 18, although still a long way off the high 20s and 30s we saw a few years ago.
Oil prices were volatile due to uncertainty in the Middle East but are still lower, and inflation has peaked for now. The latest information out of Europe shows eurozone inflation down to a surprisingly low 2.9%. German inflation is now back to a 28-month low.
China remains in slowdown mode, as evidenced by its most recent PMI Manufacturing data coming in lower than expected for October at 45.5, down from 50.2 in September.
It looks increasingly likely that the US Fed will leave interest rates unchanged. However, it is always risky writing that, given the pressures of a hot economy, surprisingly strong employment numbers and global uncertainty, particularly with the next rate-setting meeting later today.
The ECB kept their interest rates on hold for the first time in more than a year after ten consecutive hikes. This feels enough, for unlike the US, European growth has stalled, with October growth contracting by 0.1%. Word of warning: ECB President Lagarde would not hesitate to increase them if required. While the Bank of England said that future decisions will be "finely balanced."
So, we are seeing a 'Western rates holding pattern', at least for now.
In the emerging markets, on the other hand, the weight of the strong US dollar, combined with rising oil prices, has continued to put pressure on these markets, and we do expect to see further interest rate rises in the coming weeks.
Equity earnings were broadly mixed, particularly among the giant tech firms. By the end of the month, Tesla had fallen by almost 20% and Alphabet 6%, while Amazon was up 4.5%. The S&P 500 and Nasdaq were down 2.2% and 2.8%, respectively, a better performance than elsewhere. In Europe, the FTSE 100 was down 5% and the Dax 3.8%. In Asia, the Nikkei 225 was down 3.1%, and the Shanghai Composite Index was down 3.0%.
Although the narrative has changed, commodity markets have not moved significantly by the Israel-Hamas conflict. Before this started, on 4 October, there was a big oil price drop on supply and recovery concerns, and although there are concerns about Middle East supply disruption, this has yet to filter through and by the end of the month WTI had fallen by over 10% and Brent by 8%. In precious metals, gold was, however, up almost 7% for the month as investors sought safety, and silver was up 2.5%.
Bitcoin was back in the headlines, as investors turned to crypto over traditional assets amid the uncertainty and, more significantly, started to party on the possibility of Greyscale’s ETF getting the green light from the SEC. Bitcoin rose by almost 30% during the month. Crypto advocates are keeping their fingers crossed that the SEC comes good - they should know any day now - otherwise, you will see a swift fall back into the mid-20s.