The value of the Australian Dollar broadly decreased against most major foreign currencies (except the USD), somewhat increasing overseas investment returns when measured in Australian dollar terms. International fixed interest markets posted negative returns as yields generally rose across all durations.

The Reserve Bank of Australia increased its cash rate target by 0.25% to 2.60% on 4 October (before increasing by another 0.25% in early November). The last time interest rates exceeded the current level in Australia was almost a decade ago in 2013. The interest rate increase was in response to the higher CPI print of 7.3% year-on-year for September, a level not seen since the early 1990’s. The Bank of Canada and Bank of New Zealand both increased interest rates by 0.5% in October. Whilst the Federal Reserve, the Bank of England and the European Central Bank were not scheduled to adjust monetary policy in October, all three banks did hike interest rates in early November. 

The Australian Federal Budget for 2022-23 was released on 25 October by the Treasurer, Jim Chalmers. The Budget highlighted the forces compounding against the Australian economy including: COVID-19 recovery, major flooding, high inflation and rising interest rates. Measures taken to curb the cost-of-living crisis in the Budget include: $4.7bn over four years to subsidise family childcare, affordable housing initiatives such as allocating $10bn in the Housing Australia Future Fund, and reducing co-payments for treatments under the Pharmaceutical Benefit Scheme. The Budget also looks at funding free TAFE placements and enhancing schools and universities. Estimates from the Government suggest the annual deficit from the Budget will be $36.9bn (roughly 1% of GDP), a reduction of $41.1bn from the prior year.

The United Kingdom’s political turmoil continued in October as Prime Minister Liz Truss resigned on 21 October. Truss was the shortest serving Prime Minister in UK history, staying in the top job for just 50 days. Although she was elected by Tory party members in September and she attempted to implement the policy platform she ran on, financial market reactions to her government’s “mini-budget”, given the current economic environment, were severe. Former Chancellor of the Exchequer Rishi Sunak was elected unopposed as the Leader of the Conservative Party following Truss’ resignation and was appointed Prime Minister by King Charles on 25 October. The UK is perhaps the most vulnerable developed country from an economic standpoint currently, with Prime Minister Sunak pledging to instill “stability and unity” amidst double digit inflation with the September CPI increasing to 10.1% year-on-year. The UK bond market (Gilts) favoured the appointment of Sunak as ten-year yields promptly fell by 0.2% by 11am that morning.  

President Xi Jinping was appointed General Secretary of the Chinese Communist party for an expected but precedent-breaking third five-year term. The historic appointment arguably makes Xi the most influential ruler of China since Mao Zedong. Along with appointment of General Secretary, Xi was also approved once again as the Chairman of the Central Military Commission. Xi further consolidated power by appointing only his supporters in a restructured Politburo Standing Committee. Despite continued economic slowdown, President Xi has continued to stick with his zero-COVID-19 policy.

Equities

Major developed foreign equity markets produced strong positive returns in the month of October. Developed markets (excluding Australia) returned 7.2% on a currency-hedged basis (and 7.8% in Australian dollar terms, reflecting the fall in the value of the Australian dollar). The best performing of the major foreign markets was the European’s (Euro Stoxx 50 Index) returning 9.1%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of 6.0% during October (largely unwinding the fall in September), with 9 out of 11 sectors experiencing positive returns. Financials, Energy and Real Estate were the top performing sectors, with returns of 12.2%, 9.3% and 9.3% respectively. Consumer Staples and Materials returned -0.2% and -0.1% respectively.

From a foreign developed market perspective, all sectors also produced positive returns. Energy was the standout performer at 19.3%, whilst the worst performing sector, Communication Services, still managed to return 1.2%.

Bonds

The Australian government bond yield curve shifted downwards in October, resulting in positive Australian fixed interest returns for the month of 0.9% (Bloomberg AusBond Composite Index). The slope of the Australian government bond yield curve flattened somewhat in October as the two-year yield decreased by 0.08% and the ten-year yield decreased by 0.13%. As noted above, the cash rate set by the RBA increased by 0.25%, from 2.35% to 2.60% on 4 October.

Over the month of October, major developed global government bond yields broadly increased resulting in negative returns, with the Bloomberg Barclays Global Aggregate Index returning -0.7%. Notably, the United States Government yields rose 0.2% over ten-year maturities, the most of the major developed government bond markets. Over the two-year term the United Kingdom’s government yields fell the most, by 0.90%, as some policies of the Truss Government were unwound. 

Currencies

The Australian Dollar was mixed against all major foreign currencies in October. Notably the Australian Dollar fell 2.6% against the British Pound, increased 2.7% against the Japanese Yen and was flat against the United States Dollar.

Commodities

The price of WTI oil and Brent oil increased over the month, finishing up 8.9% and 7.8% respectively, as global supply failed to keep up with demand. The S&P GSCI Commodities index increased by 4.8% for the month of October, with the price of iron ore futures notably falling 17.5%. Of the precious metals, the price of gold decreased 1.6% and the price of silver increased by 0.7% in October. 

Performance of key markets over relevant time periods to 31 October 2022:

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	6.0%	6.5%	-2.0%
International Shares	MSCI World Ex Aust Unhedged A$	7.8%	8.2%	-4.3%
International Shares	MSCI World Ex Aust Hedged A$	7.2%	1.7%	-16.1%
US Shares	S&P 500 Index	8.1%	2.8%	-14.6%
UK Shares	FTSE 100 Index	3.0%	0.2%	1.7%
Japanese Shares	Nikkei 225 Index	6.4%	5.5%	-2.4%
Australian Listed Property	S&P/ASX 200 A-REIT Index	9.9%	2.5%	-14.1%
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.9%	0.3%	-7.2%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.2%	0.7%	0.8%
Currency	AUD/USD	0.0%	-7.3%	-14.9%

*Percentage changes in returns are for periods over the month of October (Month), financial year to date 30 June 2022 to 31 October 2022 and the prior 12 months 31 October 2021 to 31 October 2022 (Prior 12m). Past performance is not an indication of future performance.

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