Investment Commentary - October 2024

A positive economic backdrop put paid to recent gains for equities and bonds in October, as the odds of rapid interest rate cutting cycles from the major central banks diminished. This was reinforced by the latest inflation readings in the US, which showed core CPI in the US ticking up from 3.2% to 3.3% year-on-year in September (the first increase for around eighteen months). With inflation pressures not retreating fully, the number of forecast rate cuts by the Federal Reserve reduced. According to Deutsche Bank, the forecast rate at the December meeting rose from 2.95% to 3.62%. Also adding to the uncertainty was the seemingly tight US Presidential race and ongoing tensions in the Middle East, with tit-for-tat missile strikes between Israel and Iran.

Against this backdrop, it was a poor month for sovereign bonds, with US Treasuries having their worst month since late 2022, returning -2.5%. Gilts also had a bad month, returning -2.7%, as additional borrowing announced in the budget put significant upward pressure on yields. Eurozone bonds fared slightly better than their US and UK counterparts with a -1% return. The ECB’s rate cutting programme is now well established, having gone from periodic cuts to their first back-to-back cut at their meeting in October.

Equities were also generally weaker during the period, with the first negative month for the S&P 500 since April (-0.9% return). Returns were generally positive for risk assets until the latter part of the month, when the bulk of the US earnings releases fell. Despite a solid quarter for big tech, sky-high expectations fell short, leading to share price weakness which, in turn, led the wider market lower. UK equities were soft in the weeks leading up to the budget, with the tax burden increased for UK employers. The FTSE 100 returned -1.4% over the period. Eurozone equities fared even worse, with the Stoxx 600 down -3.2%, led by weakness in the big car makers and luxury goods manufacturers (weak Chinese demand blamed for these). Despite ongoing support measures announced by Chinese authorities, their equity markets came under pressure in October, with the Hang Seng down -3.8%. A stronger US Dollar put other emerging markets under pressure, with the MSCI EM Index down -4.3%. Bucking the trend was Japan, with the Nikkei the only major market in positive territory (+3.1%) after three down months.

In commodities, gold continued its excellent year-to-date performance, with another positive month (+4.2%) and inching closer to closer to its all-time high. Other precious metals also enjoyed similar returns in October. The price of oil was volatile during the period, reacting to fresh news emanating from the Middle East. Crude prices did end the month in positive territory however (+1.9% for Brent and +1.6% for WTI). This arrested a significant slide from the previous months. Despite positive returns for gold and oil, the broader CRB Index fell -1.1%, dragged down by weakness in industrial metals such as copper (-4.7%) and soft commodities such as wheat (-2.3%).

In currencies, the US Dollar came back strongly from a period of weakness, with the Dollar Index up +3.2%. In fact, the Dollar strengthened against every other G10 currency during the period. The Japanese Yen weakened against most currencies after recent strength, falling -5.5% versus the Dollar. The additional borrowing announced within the UK Budget took the wind out of Sterling’s sails and it fell against both the Euro (-1.3%) and the Dollar (-3.6%).

All figures quoted are local currency returns (and USD returns for commodities)