October was a fairly strong month for global risk assets, as developed and emerging market equities mostly rose, the US yield curve steepened, the US dollar weakened, credit spreads tightened, and oil rallied. The Federal Reserve cut interest rates by 25bps for the third time since July, and highlighted weak business investment in its statement. Third quarter US GDP grew at 1.9%, supported by strong consumer and government spending. The US ISM manufacturing activity index fell to its lowest level since June 2009, while the nonmanufacturing index fell to the lowest level since August 2016. Australia’s central bank cut interest rates to a record low 0.75%, the third rate cut in five months. China’s exports to the US fell by 22% in September from a year earlier, and total exports fell 3.2%. Chinese GDP grew 6% in the third quarter, the slowest rate of growth since the current measure of GDP was adopted in 1992. The US jobs report showed that 136,000 jobs were added in September (the 108th consecutive month of job creation), the unemployment rate fell to 3.5%, the labor force participation rate held at 63.2%, average hourly earnings rose 2.9% from a year earlier, and the total labor force hit a record high of 164 million.
Developed market equities were mostly higher in October (see page 8), with the biggest gains in Japan (+4.9%), Hong Kong (+4.7%), and Germany (+3.5%), and biggest losses in the UK (-2.1%), Canada (-0.9%), and Australia (-0.4%). US small caps outperformed large caps, with the Russell 2000 up 2.6% and the Russell 1000 up 2.1% (see page 3). Healthcare (+5.1%), IT (+3.9%), and Communication Services (+3%) were the best performing sectors in October; Energy (-2.3%), Utilities (-0.8%), and Consumer Staples (-0.1%) were the worst performing sectors (see page 2). Large cap value (+1.4%) underperformed large cap growth (+2.8) in October (see page 3). Emerging market equities were mostly higher in October (see page 9), with the biggest gains in Russia (+7.4%), Taiwan (+6.1%), and India (+4.4%), and the losses in Argentina (-4.8%) and Thailand (-2.8%).
In currencies, the USD Index was lower (-2%) in October (see page 10), with the biggest gains against the USD seen in the British Pound (+5.3%), New Zealand Dollar (+2.4%), and Euro (+2.3%); the Norwegian Krone (-1%) moved lower against the USD. Emerging market currencies were mostly higher against the USD, with the largest gains in the Brazilian Real (+3.4%), Mexican Peso (+2.6%), and Korean Won (+2.5%), and losses in the Turkish Lira (-1.1%) and Indian Rupee (-0.6%).
The US interest rate curve steepened in October (see page 12). 10 year rates closed the month at 1.69%, up from 1.66% at September month end. US investment grade and high yield spreads tightened in October (see page 13).
In commodities, the GSCI index was up 1.2% in October (see page 11), with gains in Precious Metals (+3.3%), Industrial Metals (+1.7%), Livestock (+1.5%), Agriculture (+1.4%), and Energy (+0.9%). Within individual commodities, Palladium (+6.7%), Silver (+6.4%), and Live Cattle (+6.4%) saw the biggest gains, while Lean Hogs (-9%), Cocoa (-1.5%), and Sugar (-1.2%) saw the biggest losses.
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