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4. November 2016 16:24
by Irene
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October 2016 - Market Commentary

4. November 2016 16:24 by Irene | 0 Comments

Brexit was felt in the month of October with Sterling falling another -5.6%, which takes it to -17.7% since the referendum against the US Dollar. For a Sterling domiciled investor, the drop in Sterling helped securities in other currencies. The global economy picked up some steam in October, with the global purchasing managers’ index rising to 51.9, showing expansion, although this did not feed through to equities markets, with the Dow Jones Industrial Average posting a loss of -0.8%.

United Kingdom

At the beginning of October Prime Minister Theresa May announced that she will trigger Article 50 by the end of March 2017, resulting in Sterling falling to new lows, and in turn helping the more export centric FTSE 100 increasing by 1.0%. The drop in Sterling is slowly feeding through to inflation, made publicly aware by the Marmite spat between Unilever and Tesco over who should absorb the additional costs of imported goods. The question is how far inflation will go.

Europe

The European Central Bank (ECB) kept monetary policy unchanged and suggested that it would decide in December whether it will extend its quantitative easing program beyond March 2017. October was a quiet month for the major European stock markets with German and French markets rising by 1% in EUR. The big outperformers were European Banks, gaining 9% after the risk of default by Deutsche Bank somewhat faded during October.

United States

The election in the United States has heated up even more. As the polls are too tight to call, US equities fell over the month with the S&P 500 recording a loss of 1.8% amid the uncertainty. The macro-economic signals were mixed, with GDP estimates showing US growth picking up, led by consumption and exports. On the other hand, the core consumer price index slowed to 2.2% in the 12 months ending September and non-farm payrolls eased slightly in September. All eyes will be on the outcome of the election in November, with a rate rise in December being priced in at above 70% as at the end of October.

Asia and Emerging Markets

The increasing consensus of a Fed rate hike in December meant that Emerging Markets equities gained only marginally. An outperformer was Brazil’s Bovespa index, which returned 14% in local currency benefiting from improved political developments. Japanese equities rose consistently during October to register a total return of 5.3% for the month, helped by a weakening yen.

Fixed Income

October was a tough market for fixed income with government bond yields rising nearly across the board. UK gilts lost -3.9% while inflation-linked gilts returned -0.6% with inflation slowly feeding through to the consumer from the aftermath of the referendum. Emerging Markets bonds lost as well, both for USD-denominated debt as well as for local debt.

Commodities

There were different headlines over the time of October from OPEC whether it will be able to agree on a production freeze or not, resulting in higher volatility for oil with WTI Crude Oil losing -3.1% in USD for the month. Although there was heightened uncertainty in markets, gold lost 3% in USD for the month amid the higher expectations of a rate rise.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 31 Oct 2016, all returns in GBP.

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