In October global developed markets performed strongly, canceling out the September losses. The main focus remained on inflation and central bank policies, but it was also the month of quarterly earnings announcements.

In spite of the Federal Reserve confirming that tighter monetary policy is still needed to contain elevated inflation, the Dow Jones gained 13,94% and S&P500 gained 7,99%. The tech-heavy Nasdaq gained just 3,90%, as index heavyweights like Google and Amazon pulled the index lower on disappointing earnings and forecasts. Meanwhile US inflation notched down from 8,3% to 8,2%, less than the anticipated 8,1%. Core inflation on the other hand increased from 6,3% to 6,6%, putting more pressure on the FED to raise the interest by yet another 0,75%. The central bank signalled that the risk of tightening too much far outweighs the risk of doing too little. The dollar lost 0,86% against the Euro to close at 0,9883 USD/EUR.

Eurozone shares also moved higher in October with the DAX, Eurostoxx and CAC40 gaining 9,40%, 9,02% and 8,76% respectively. The Slovene SBITOP index also gained 6,02%, closing above EUR 1000 again at 1021. The European Central Bank raised interest rates by a further 75 basis points and acknowledged that the eurozone economy may be heading for recession. Markets took that statement as a sign that the pace of rate rises could soon ease, which supported appetite for shares. Preliminary data showed that the eurozone economy continued to grow in Q3, with an expansion of 0.2% quarter-on-quarter after 0.8% growth in Q2.

Inflation however hit a new record high of 10.7% year-on-year in October, with energy the largest contributor to the rise. Worries over gas shortages eased with storage facilities close to capacity after a ramp-up in imports and lower demand amid mild weather and energy-saving measures.

After just 7 weeks on the job, Liz Truss resigned as prime minister. UK markets reacted positively to Rishi Sunak being appointed leader of the Conservative Party and, by extension, becoming the country’s new prime minister. UK macroeconomic data however deteriorated as the economy had unexpectedly shrunk by 0.3% in August, adding to fears of imminent recession. The FTSE index gained 2,91% while the Pound Sterling gained 1,85% against the Euro to 0,8615GBP/EUR.

Chinese equities were sold off sharply following the confirmation that Chinese Premier Xi Jinping would remain as leader for an historic third five-year term. Markets fell on concerns that Xi may continue with policies focused on reducing China’s exposure to foreign interests and influence at the expense of economic growth. News that China would not be relaxing its zero-Covid policy anytime soon also weakened investor sentiment. The Hong Kong Hang Seng index dropped by 14,72%.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - October 2022