Global equity markets generally posted positive returns in October 2019. All major stock exchanges increased over the month by at least 1%, with the exceptions of the United Kingdom and Australia. Japanese and Emerging market stock markets registering the largest gains of 5.4% and 3.0% respectively. The value of the Australian Dollar increased against most major currencies, and global investment grade credit spreads broadly contracted (i.e. the market’s perceived riskiness of lending to high quality companies decreased).

The United States economy saw signs of slowing down throughout October with non-farm payroll numbers and manufacturing survey results coming in weaker than expected. In trade-war developments talks between the United States and China continued, however no formal progress was made. The Chinese government agreed to double its purchases of US agricultural products and to consider policies in areas such as intellectual property and financial services in exchange for relief from further scheduled tariff increases. President Donald Trump saw the House of Representatives vote to proceed with a formal impeachment hearing, at the end of which the House will vote on the articles of impeachment. If the vote passes, President Donald Trump will be impeached and the Senate (requiring a two-thirds majority) will vote on whether to convict and remove the President from office.

The Federal Reserve (Fed), the United States Central Bank, reduced the cash rate by 0.25% at the end of October. The market had priced the cut in, and the upper end of the cash rate target range moved to 1.75%. The Federal Open Market Committee stated that “the Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

The Reserve Bank of Australia (RBA) also cuts rates by 0.25% to 0.75% in October. In a media release Philip Lowe, the Governor of the RBA, stated that “while the outlook for the global economy remains reasonable, the risks are tilted to the downside. The US–China trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans because of the increased uncertainty.” The final meeting of Mario Draghi’s eight-year presidency saw interest rates unchanged (although they remain at historic low levels) at the European Central Bank (ECB) and revelations that quantitative easing would resume. The incoming president for the ECB is Christine Legarde, the former managing director of the International Monetary Fund (IMF).

Boris Johnson, the Prime Minister of the United Kingdom, was unsuccessful at passing his Brexit withdrawal bill and ultimately complied with the Benn Act which forced him to request an extension from the President of the European Council, Donald Tusk. The European Council agreed to accept the extension request and granted a “flextension” until 31 January 2020. The “flex” portion of the extension allows the United Kingdom to leave earlier on the 1st of December or on the 1st of January, if parliament agrees to a deal and the requirements are formalised. In the meantime, Boris Johnson passed a bill to circumvent to the Fixed Term Parliament Act and has announced a general election on the 12th of December 2019. The bill passed with no amendments. This is the third general election in four years for the United Kingdom. The opposition leader, Jeremy Corbyn, stated that the Labour party was ready for the election now that the No-Deal Brexit option has been (temporarily at least) removed. The election is likely to focus around Brexit policy.

Hong Kong protestors continue to demonstrate in the streets which has been ongoing since June. October saw some of the most violent confrontations to date. As China celebrated 70 years of Communist rule one protestor was shot by police and 180 people were arrested. On Halloween tear gas was once again used as a means of deterring the protestors. The economy of Hong Kong saw negative GDP growth for the October quarter, the first such result since 2009. One commentator suggested "it’s completely driven by social events, and this is something the government needs to consider". It’s likely that the continued protesting will weigh on the Hong Kong economy for some time to come.

Equities

Foreign equity markets, except for the United Kingdom’s FTSE 100, posted positive returns in October. Developed markets returned 1.8% in local currency terms (and 0.4% in Australian dollar terms), whereas emerging markets reversed the trend and outperformed developed markets for the first time in 2019 returning 3.0%. The leading performer (for the second consecutive month) was Japan’s Nikkei 225 which returned 5.4% for the month alone.

The Australian stock market generated a negative 0.4% return during October, with a roughly even split for positive returning sectors versus negative returning sectors. Two sectors outperformed strongly in Australia, most notably being Health Care which returned 7.6% and the other being Industrials. The worst performing sectors were Information Technology, Financials and Consumer Staples.

From a developed market sectoral perspective, all but 3 sectors generated positive returns. Health Care and Information Technology were the best performing sectors with returns each over 3.5%, whilst Energy and Consumer Staples produced returns of -2.8% and -1.3% respectively.

Bonds

The Australian government bond yield curve steepened over October as two-year and ten-year yields increased 0.05% and 0.12% respectively. Rising bond yields are negative for short term bond investment returns.

Bond yields increased for all major overseas countries for both two-year and ten-year terms, with the sole exception being US two-year yields, which decreased by 0.1%. European ten-year yields had the biggest increase of 0.16%, however, the yield remains significantly negative at -0.41%.

Currencies

The Australian dollar strengthened against the United States Dollar, Japanese Yen, and Swiss Franc, due to a positive environment for risk assets. However, the AUD remained broadly flat against the Euro and Chinese Renminbi, whilst the AUD fell 3.0% against the British Pound.

The Australian Dollar finished the month at 0.6894 US Dollars, which was an increase of 2.1% against the USD over the month.

Commodities

The price of WTI crude oil remained relatively neutral in October whilst Brent crude oil decreased 0.9%. Industrial metal prices increased 1.5% on average, with iron ore being the most volatile dropping 8.3% following increased global supply. Of the precious metals, gold and silver saw positive returns of 2.8% and 6.5% respectively for the month.

Performance of key markets:

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-0.4	2.0	19.3
International Shares	MSCI World Ex Aust Unhedged A$	0.4	5.1	15.8
International Shares	MSCI World Ex Aust Hedged A$	1.8	3.2	11.5
US Shares	S&P 500 Index	2.2	3.9	14.3
UK Shares	FTSE 100 Index	-1.9	-0.9	6.5
Japanese Shares	Nikkei 225 Index	5.4	8.6	6.9
Australian Listed Property	S&P/ASX 200 A-REIT Index	1.2	2.2	23.6
Australian Fixed Interest	Bloomberg AusBond Composite Index	-0.5	1.5	10.1
Australian Cash	Bloomberg AusBond Bank Bill Index	0.1	0.4	1.7
Currency	AUD/USD	2.1	-1.8	-2.5

Returns are for periods to 31 October 2019. Past performance is not an indication of future performance.