In October, global financial markets faced challenges due to concerns about prolonged high-interest rates and escalating geopolitical risks. These factors had various impacts on different asset classes. Here's a snapshot of the key developments:

Australian Stock Market  

Australian shares experienced a decline of nearly 4% during the month, reflecting the overall sentiment in global markets. This drop was partly driven by the third consecutive monthly decline in the S&P 500 Index in the United States. Additionally, rising government bond yields posed a challenge for fixed income, causing major bond indices to close lower both in Australia and abroad.  

Precious Metals and Cryptocurrencies

Investors showed a general risk aversion, causing the price of gold to rise by more than 7%. Historically, gold prices tend to increase during periods of heightened uncertainty. On the other hand, cryptocurrencies performed well, with Bitcoin's value rising nearly 30% in October. Bitcoin's value had more than doubled in the calendar year to date, highlighting its low correlation with other financial assets.

United States Economy

The US economy continued to show resilience and was relatively unaffected by significant increases in interest rates. In the September quarter, the US economy grew at its fastest pace in nearly two years, driven by higher consumer spending. The labor market remained robust, with non-farm payrolls increasing significantly in September, surpassing consensus forecasts. However, consumer prices in the US continued to rise at an annual pace of 3.7%, above the Federal Reserve's target, prompting concerns about ongoing inflation.

Australia

In Australia, Reserve Bank Governor Michele Bullock indicated that the country might not have seen the end of the interest rate hiking cycle. Minutes from the Reserve Bank's latest meeting suggested a low tolerance for a slower return of inflation to the target. This raised the possibility of a further 0.25% increase in official interest rates. The Consumer Price Index for the September quarter showed a moderation in inflation but still exceeded consensus forecasts, intensifying the link between inflation and monetary policy.

New Zealand

In New Zealand, the political landscape garnered attention after Christopher Luxon's National Party won a significant share of the vote in the general election. The country also witnessed a moderation in annual inflation, and no further interest rate increases were anticipated.

Europe

In Europe, a moderation in inflation in the Eurozone reduced the likelihood of further interest rate hikes. Consumer prices rose at the slowest pace in nearly two years, although still above the European Central Bank's target. Germany showed some improvement in economic indicators, but the possibility of negative GDP growth for the year remained. Germany was expected to surpass Japan as the world's third-largest economy, largely due to the weakness of the Japanese yen against the US dollar. In the UK, high inflation prompted suggestions of further interest rate increases, although there were mixed signals in the labor market.

Asia/EM

China's GDP growth data for the September quarter were somewhat better than anticipated, providing encouragement for the world's second-largest economy. While economic indicators improved in some areas, challenges in the property sector persisted, with some major developers defaulting on their debt repayments. This situation could have adverse consequences for China's economy. Additionally, the Bank of Japan was preparing to announce additional spending to cushion the impact of rising inflation on households and stimulate economic activity.

Australian Dollar

The Australian dollar weakened against the US dollar due to a 'risk-off' tone in global markets. It declined by around 1.5%, closing the month slightly over 63 US cents. It also performed similarly against a trade-weighted basket of international currencies.

Australian Equities

AGM season began for ASX-listed companies, but the escalating geopolitical uncertainty in the Middle East negatively impacted sentiment. The S&P/ASX 200 Accumulation Index ended the month 3.8% lower. The Utilities sector was the only one to finish in positive territory, supported by Origin Energy. The Materials sector also outperformed, partly due to rising gold prices. However, the IT sector faced challenges, with mixed earnings results from large US tech companies. Healthcare stocks fell over the month, and small caps underperformed their large-cap counterparts.

Global Equities

Persistent concerns about economic growth and higher interest rates affected share markets worldwide. The MSCI World Index declined by 1.0% in Australian dollar terms, with worse returns in local currency terms. In the US, the S&P 500 Index experienced its third consecutive monthly decline. Share markets in Asia and Europe closed the month between 3% and 4% lower. Japan's Nikkei registered its fourth consecutive monthly drop, and Chinese shares fell in both China and Hong Kong.

Listed Property

Global property securities faced challenges in October, reflecting broader market weakness. Concerns about persistent inflation and rising interest rates negatively affected real estate investment trusts (REITs). However, European markets held up relatively well due to a moderation in inflation.

Global and Australian Fixed Income

Global fixed income markets experienced a sharp sell-off as bond yields trended higher in major regions. Yields on 10-year government bonds in the US breached the 5% threshold for the first time since 2007. Yields on 10-year Japanese Government Bonds also rose significantly. In Australia, yields on 10-year Australian Commonwealth Government Bonds increased following resilient economic data and a high inflation print for the September quarter.

Global Credit

Economic indicators remained resilient in most regions, but concerns about further interest rate increases and geopolitical tensions contributed to a moderation in risk appetite. Credit spreads widened, preventing corporate bonds from making significant progress. However, global credit managed to generate a small positive return due to regular coupon income and increased prospective returns from credit.

In summary, October 2023 was marked by challenging conditions in global financial markets, driven by concerns about high-interest rates and escalating geopolitical risks. Various asset classes were affected differently, with some areas showing resilience while others faced significant headwinds. Investors remained cautious, and the economic outlook remained uncertain in many regions.