In a historic move, the House of Lords rejected Chancellor George Osborne’s plans to save over £4 billion in tax credit reforms. The tax credits were introduced sixteen years ago to help working people on low pay make ends meet, but in his latest Budget Osborne justified the cuts by citing the fact that spending on tax credits had “more than trebled in real terms” since their launch. According to independent research by the House of Commons, the cuts would effect “almost all” recipients of tax credits, with some families losing their entitlement completely. The vote marks the first time in 100 years that the House of Lords has rejected a financial package backed by the House of Commons.
The UK economy slowed in the third quarter of 2015, as GDP grew by just 0.5% according to estimates from the Office for National Statistics. This is lower than the 0.6% forecast by many analysts, and lower than the 0.7% growth in the second quarter. The main reason for the slump lies with the construction sector, whose output declined by -2.2% during the quarter, the first quarterly decrease in two and a half years. Meanwhile UK inflation, measured using the Consumer Prices Index, is negative again at -0.1%.
The World Bank has issued a press release in which it states that the number of people living in poverty is expected to fall under 10% of the world’s population for the first time in 2015. Using an updated poverty line of $1.90 a day, the Bank projects that global poverty will have fallen from 902 million people to 702 million people, or 9.6% of the global population. The Bank’s ultimate aim is to eradicate poverty by 2030.
Developed markets recovered strongly in October after poor showings in the previous two months. In the UK, the FTSE 100 index climbed +5.17%. US equities, measured by the S&P 500 index, grew by +8.44% and European markets, measured by the Euro Stoxx 50 index, surged +10.37%. The Topix index, which measures Japanese equities, rocketed by +10.42%. In the UK mid- and small-cap markets, the FTSE 250 (ex IT) index and the FTSE Small Cap (ex IT) index provided slightly more moderate returns of +2.61% and +1.75% respectively.
Emerging markets also had a good month, as the MSCI EM (Emerging Markets) index went up by +5.43%. Chinese equities, represented by the MSCI China index, increased by +9.08% and Latin American equities, measured by the MSCI EM Latin America GR index, returned +3.05%. Indian equities, measured by the IISL CNX Nifty PR index, improved by +1.47%.
Commodities had a more mixed month. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, rose by +0.23%. Brent blend oil, measured by the Oil Price Brent Crude PR index, jumped +2.46%. According to the S&P GSCI Gold and Silver indices, the prices of gold and silver rallied by +2.35% and +7.23% respectively. In the agricultural markets, corn was down -1.42% and wheat was up +1.80%.
Bond returns were mostly positive during the month, particularly in the high yield market. The Bank of America Merrill Lynch Euro High Yield index leapt +3.11% and the Bank of America Merrill Lynch Sterling High Yield index saw a rise of +1.63%. The domestic sovereign bond market fared less well, as the FTSE Gilts All Stocks index fell by -1.10% and long dated (over 15 years to maturity) dropped -2.10%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, lifted +1.38% and sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, increased by +0.19%. Emerging Market sovereign debt, measured by the JP Morgan EMBI Global index, saw a hike of +3.16%.
In the currency markets, a strong month for the pound saw the US dollar, the yen and the euro depreciate against it by -1.92%, -2.66% and -2.94% respectively.
James Timpson CFA, BSc (Hons), IMC
(All the above returns are reflected on a local currency basis i.e. they do not factor in any relevant currency movements. Unless accompanied by PR (Price Return), they do include income).
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