As we forecast in last month’s report, financial markets experienced a rocky ride during October as storm clouds gathered over the financial landscape. The major concern centered on uncertainty over the outcome of the US Presidential election held in early November. In addition to this, economic data confirmed the growing likelihood that the US Fed will increase cash rates for the first time in a year by hiking rates by 0.25% in December. In the UK, the reality of the Brexit vote to leave the EU began to strike home as Prime Minister Theresa May commenced the process to extricate the UK from the European Union.
Equity markets were generally weaker over the month with Australian market down 2.2% despite a firmer Resources sector, buoyed by firmer commodity prices. A back up in bond yields saw the interest rate sensitive sectors of our market such as REIT’s fall sharply. In overseas markets, The US was down 1.8%, while the UK was up 1% and Germany up 1.5%. The standout performer was Japan which rose by 5.3% as the BOJ announced it would continue its expansionary monetary policy settings. It was significant to observe that bond yields backed up both in the US and Australia as the market began to factor in the likelihood that the process of normalising interest rates in the US was close at hand. In Australia, the RBA decided to keep rates on hold in their meeting on Melbourne Cup day, leaving a finely balanced equation as to whether we have seen the bottom of the interest rate cycle here.