Geopolitics dominates markets
Highlights
- US Fed cuts rates again by 0.25%
- Shares move higher across the globe
Political events around the world played a key role in driving market movements in October, with risk asset markets and the global growth outlook benefiting from some positive developments.
The US and China are close to signing a ‘phase one’ agreement and the market views the deal to be supportive of business confidence and activity. The impact of the trade war is being felt in US industrial activity, which continues to soften. Consumer spending and the labour market remain strong.
US Fed cuts rates again, Brexit negotiations improve growth
The US Federal Reserve lowered interest rates by 0.25% in October to support the economy and protect it from ongoing risks, particularly from trade tensions and the slowdown in global growth.
Fed officials have said that further action will be largely dependent on future economic dataflow.
In the UK and Europe, Brexit negotiations between the two regions progressed positively in October, with Europe agreeing to a deal. The outcome for Brexit now lies with the UK government following an election to be held in December this year. Growth in both regions improved marginally in October but is expected to remain soft.
Chinese indicators remain soft
Chinese economic data releases were mixed in the month as industrial production improved to 5.8% year on year grew and retail sales growing by 7.8%, but GDP growth and measures of trade activity missed expectations.
Authorities are still pursuing balanced stimulus measures that are mainly aimed at boosting infrastructure investment.
Shares move higher
In Australia, the unemployment rate improved to 5.2%, and the RBA kept rates on hold during its November meeting. The property market continues to strengthen, which should help to gradually improve consumer confidence.
Share markets moved higher in the month. Positive developments in the US-China trade war and the Brexit negotiations, coupled with strong earnings releases, bolstered growth expectations and improved risk appetite.
Japanese shares led the way given their sensitivity to global trade, increasing by 5%. US and European shares also saw strong gains, rising 2% and 1% respectively.
Fixed income underperformed, with a sell-off in yields caused by a more positive global growth outlook. This resulted in a negative return for fixed income.
We anticipate further easing in global trade tensions may lead to a gradual rise in bond yields over time. However, if growth remains weak, this is likely to anchor yields at lower levels.
Investment commentary
Past performance is not a reliable indicator of future performance. This information has been prepared by First State Super Investments on behalf of FSS Trustee Corporation ABN 11 118 202 672 AFSL 293340, trustee of the First State Superannuation Scheme ABN 53 226 460 365.
