The British economy expanded by an estimated 0.4% in the third quarter of 2017, exceeding economists’ forecasts and the 0.3% growth in the second quarter. However, this figure is low when compared with other developed markets, such as the Eurozone which reported estimated GDP growth of 0.6% in the same period. Nevertheless, the uptick in growth, along with inflation reaching a five year high of 3%, have both contributed to the Bank of England’s decision to raise the basic interest rate for the first time in ten years.
In Europe, the Spanish region of Catalonia held an independence referendum last month and a huge majority of over 90% voted in favour of the region gaining independence from Spain. Although the vote was declared illegal by the Spanish government, the controversy surrounding the result has added to the uncertainty already present in the Eurozone. However, the Spanish stock exchange hasn’t seen any adverse effects yet as the IBEX index, which comprises the largest 35 public stocks in Spain, ended the month up +1.37%.
In the commodities world, oil has been steadily rising for four months now, and last week it exceeded $60 per barrel for the first time in over two years. The rally comes after conscious efforts made by OPEC and other major producers to reduce their output, and hence the overall supply, in a bid to boost prices.
October was a positive month for developed equity markets. In the UK, the FTSE 100 index posted an increase of +1.82. Medium and smaller companies, measured by the FTSE 250 (ex IT) index and the FTSE Small Cap (ex IT) index, gained +1.97% and +1.66% respectively. In the US, the S&P 500 index rose +2.33% while in Europe the Eurostoxx 50 index increased +2.28%. Japanese equities, measured by the Topix index, surged +5.45%.
Emerging markets also performed well during the month. The MSCI EM (Emerging Markets) index saw an increase of +3.90%. Chinese equities, represented by the MSCI China index, picked up +3.89%. Latin American equities measured by the MSCI Latin America index saw a slight drop of -0.30%. The IISL Nifty index, which measures Indian equity returns, jumped +5.59%.
Returns were also positive in the bond markets. UK government bonds, measured by the FTSE Gilts All Stocks index, returned +0.28%, and long dated (over 15 years to maturity) gilts rose +0.53%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, increased +0.98% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, gained +0.96%. In the high yield markets, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index climbed +1.13% and +0.92% respectively. Emerging Market sovereign debt, measured by the JP Morgan EMBI Global index, moved +0.18%.
Commodities had another mixed month. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, delivered +3.82%. The Oil Price Brent Crude PR index surged +7.31%. Gold measured by the S&P GSCI Gold index declined -1.02% but the S&P GSCI Silver index returned +0.20%. In the agricultural markets, corn and wheat fell -2.67% and -6.64% respectively.
In the FX market, it was a mixed month for the pound as it gained +0.56% against the euro but lost -0.86% versus the US dollar.
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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