The value of the Australian Dollar modestly fell against a basket of major foreign currencies, increasing overseas investment returns when measured in Australian dollar terms. Australian and international fixed interest markets posted negative returns reflecting rising bond yields.

Since 7 October Hamas and Israel have been engaged in a significant conflict in and around Gaza.  As at the end of the month, the conflict has remained primarily a localised affair, although tensions have increased in the Middle East as other geopolitical players prepared for the possibility of further escalation.  The initial reaction of investment markets to the conflict has been muted.   If hostilities expand to include other countries in the region, this could have a potential adverse impact on investment markets and oil prices.

The Board of the Reserve Bank of Australia (RBA) met on 3 October to discuss global and domestic economies and markets, and to review their monetary policy settings. The RBA left the cash rate target unchanged at 4.1%. Whilst discussing their monetary policy decision the minutes stated “members noted that inflation remained well above target and was expected to do so for some time. Services price inflation remained sticky, and fuel prices were adding to headline inflation. At the same time, members observed that the labour market had reached a turning point and output growth had slowed, albeit more gradually than previously expected. The tightening of monetary policy since May 2022 was still permeating through the economy and it would take some time for the full effects of this to be observed in the data”. The October meeting was the first Monetary Policy meeting with Michelle Bullock as the Governor and Chair, replacing the previous Governor, Philip Lowe. On 7 November, whilst not in the timeframe captured by this commentary, the RBA increased the cash rate to 4.35%.

The latest inflation data in the developed world showed inflation was cooling or steady based on data released in October. The Euro Area saw a large drop in headline year-on-year inflation from 5.2% in August to 4.3% in September. The European Central Bank (ECB) hiked its commercial bank deposit rate by 0.25% to 4% in September, the highest rate since the ECB was formed in 1998 but kept the rate unchanged on 27 October. In Australia the headline year-on-year CPI measure decreased in September to 5.4% (from 6.0% in June), however, when looking at the monthly CPI Indicator, the annualised figure rose from 5.2% in August to 5.6% in September. In the United States, the year-on-year headline inflation figure remained unchanged from August to September at 3.7%. Headline year-on-year inflation in Japan continued to decline, to 3.0% in September (from 3.2% in August) despite the Bank of Japan not raising interest rates this cycle.

Equities

Major developed foreign equity markets fell in October. Developed markets (excluding Australia) returned -2.7% on a currency-hedged basis (and -1.0% unhedged in Australian dollar terms, reflecting the fall in the value of the Australian dollar). The best performing major foreign equity market was the US stock market (S&P 500 Index) returning -2.1% (in local currency terms) in October. 

The Australian stock market (S&P/ASX 200 Index) was the worst performing market of its global peers - down 3.8%, with 10 out of 11 industry sectors experiencing negative returns. The sole positively returning sector was Utilities which returned 1.7%. The worst performing sectors were Information Technology and Health Care with returns of -7.6% and -7.2% respectively.

Similarly, from a foreign developed market perspective, 10 out of 11 sectors produced negative returns for the month. Utilities was the exception, returning +0.8%, whilst the worst performing sectors were Consumer Discretionary and Health Care which fell 4.5% and 4.0% respectively.

Bonds

The Australian government bond yield curve steepened in October, with 2-year yields rising (0.38%) and 10-year yields rising further (0.44%) to finish the month at 4.46% and 4.93% respectively. Australian fixed interest returns for October were -1.8% (Bloomberg AusBond Composite Index).

Over October, major developed global government bond yields broadly rose. The Bloomberg Global Aggregate Index (Hedged) was down 0.8%, largely reflecting the rise in longer term bond yields. Notably the 10-year US government bond yields broke 5% (briefly) for the first time in 16 years and finished the month up 0.36% at a level of 4.93%.

Currencies

The Australian Dollar broadly fell against major foreign currencies in October. The Australian Dollar decreased by 1.5% against the US Dollar but was broadly flat against the Japanese Yen. The Australian Dollar finished the month at 0.6337 US Dollars, down 1.0 US cents over the month.

Commodities

Commodity prices were volatile over the month of October and the S&P GSCI Commodities Index ended the month down 5.4%. The price of WTI oil and Brent oil fell 10.8% and 8.3% respectively. Notably the price of Natural Gas rose 22.1% over the month. Of the precious metals, the price of gold rose 7.3% and the price of silver rose 3.0% in October. 

Performance of key markets over relevant time periods to 31 October 2023:

Asset class	Index	Month* (% change)	FYTD* (% change)	Prior 12m* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-3.8%	-4.5%	3.0%
International Shares	MSCI World Ex Aust Unhedged A$	-1.0%	-1.4%	11.7%
International Shares	MSCI World Ex Aust Hedged A$	-2.7%	-5.5%	8.3%
US Shares	S&P 500 Index	-2.1%	-5.3%	10.1%
UK Shares	FTSE 100 Index	-3.7%	-1.6%	7.2%
Japanese Shares	Nikkei 225 Index	-3.1%	-6.3%	14.2%
Australian Listed Property	S&P/ASX 200 A-REIT Index	-5.8%	-8.6%	-3.6%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-1.8%	-2.1%	-1.2%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.3%	1.4%	3.7%
Currency	AUD/USD	-1.5%	-4.9%	-1.0%

*Percentage changes in returns are for periods over the month of October (Month), financial year to 31 October 2023 (FYTD) and the prior 12 months, to 31 October 2023 (Prior 12m). Past performance is not an indication of future performance.

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