In the October 2024 Market Update, we saw notable shifts in both equity and bond markets. This month’s update explores the significant movements and the economic backdrop that shaped them. For a deeper context, check out our previous September 2024 Market Update and Insights into Q1 2024 Economic Trends.
October 2024 Market Update: Key Developments in Financial Markets
In October, equity markets pulled back marginally, but government bonds experienced high volatility amidst a significant sell-off. Strong economic growth in the US and resilient labour market data, both domestically and in the US, led to a recalibration of interest rate expectations, resulting in higher bond yields. The Australian dollar depreciated sharply as the US dollar gained against major currencies. The US Presidential election added to market volatility as investors responded to swings in the election polls.
Selected Market Returns (%), October 2024
Source: FTSE EPRA Nareit DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index
Key Market and Economic Developments in October 2024
Financial Markets
The MSCI World Index (USD) declined from intra-month highs to close 1.96% lower. A sharp weakening of the Australian dollar (-5.96%) boosted the MSCI World Index (AUD) by 3.84%. Global equity and bond markets responded to better-than-expected economic data, while US election uncertainty increased volatility.
Australian Stocks in Focus: What Moved the Market?
The S&P/ASX All Ordinaries dipped 1.33%. Consumer Staples declined 6.99% due to a weak trading update from Woolworths. Rising yields helped lift Financials by 3.29%, continuing their strong run this year. Defensive sectors also showed positive returns, with Healthcare gaining 0.89% and Communications Services lifting 0.75%. Small caps outperformed their large cap counterparts, with the S&P/ASX Small Ordinaries gaining 0.8%.
Rising Yields and Volatility: The Global Equities Perspective
US equity markets sold off in late October, with the S&P 500 Index (USD) and Russell 2000 Index (USD) declining 0.91% and 1.49% respectively. Resilient economic data supported equity markets, while rising yields impacted sectors sensitive to interest rates. Uncertainty around the US Presidential election added to market volatility as investors adjusted positions in response to changes in the election polls.
The US earnings season produced broadly stronger earnings, with 70% of companies having reported by month-end. Solid earnings were overshadowed by disappointing outlooks from some mega cap technology companies, which pressured the Nasdaq (USD) 0.52% lower. Financials led the gains, supported by strong bank earnings, followed by Communications Services. The Healthcare sector was the weakest, as earnings from large cap pharmaceutical companies disappointed.
Rising yields and increased risk aversion weighed on the MSCI Emerging Market Index, which retraced some of September’s gains, falling 4.32%. Chinese shares dipped, with the Hang Seng (HKD) falling 3.86% as investors moderated their expectations for further Chinese fiscal stimulus. European markets also broadly underperformed, reflected in the 2.6% fall in the Euro 100 Index (EUR).
Gold and Oil: Commodities Amidst Global Uncertainty
Gold continued its strong run, rising 4.1% to close at $2,744/ounce on Central Bank and investor demand. Crude oil ended at $70.52 US$/barrel, up 1.2%, experiencing significant swings as sentiment shifted in response to further volatility in the Middle East. Excess capacity has, however, limited oil price rises. Iron ore gave back some of its recent gains, declining by 7.3% as enthusiasm from China’s stimulus package waned.
Bond Yields on the Rise: A Market Response to Resilient Economies
Australian and US bond markets experienced significant selloffs as bond yields rose on resilient economic and labour market data. This led to a repricing of interest rate expectations and a steepening of the respective yield curves. The Australian 10-year benchmark yield jumped by 60 basis points to close the month at 4.52%, lifted by a decreasing likelihood that the Reserve Bank of Australia (RBA) will cut interest rates in the near term. The benchmark US 10-year bond yield also spiked, ending the month 49 basis points higher at 4.28%.
Rate Cuts, Inflation, and Labour: Economic Highlights for October
Australian labour market data highlighted a resilient jobs market, as the economy added 64,100 jobs in September, more than double the market expectation. The unemployment rate of 4.1% remained unchanged, coming in below the expected 4.2%.
September quarter CPI measured 2.8%, significantly down from the June quarter’s reading of 3.8%. This was principally aided by government electricity subsidies. Excluding the effects of volatile inputs such as electricity, the trimmed mean CPI measure matched expectations of 3.5%. While inflation continued its moderating trend, services inflation of 4.6% remained elevated.
Consumer sentiment improved by 6.2% in October. This was not reflected in retail sales, which rose by only 0.1% month-on-month, below the 0.3% consensus estimate. Purchasing Manager Index (PMI) data continued to show divergent sector activity. Manufacturing PMI data remained weak, while the Services PMI reading of 50.6 signalled marginal improvement.
The combination of a stronger labour market, resilient economic activity, and sticky inflation has tempered rate cut expectations from the RBA. Markets are pricing in a less than 50% chance of a 25 basis point rate cut in February 2025, but expectations remain for two rate cuts for the period to September 2025.
A resilient US economy and labour market
The US economy maintained its momentum with annualised third quarter GDP growth of 2.8%. Despite decelerating from 3% in the second quarter, US GDP growth remains above trend supported by the third consecutive quarter of rising consumption, reiterating the strength of the US consumer as a driver of growth. US inflation continued to decelerate with September Headline CPI rising by 2.4% compared to the 2.5% market estimate. Core PCE, the Fed’s preferred inflation gauge, met expectations showing a slight reacceleration reaching 2.7% year- on-year.
Strong US labour market data boosted confidence in economic growth, adding further impetus for markets to adjust the expected path of interest rate cuts. Nonfarm payrolls grew by 254 thousand, from 155 thousand the previous month and far exceeded expectations of 150 thousand. The unemployment rate unexpectedly fell to 4.1% from the previous reading of 4.2%.
Global economic growth holds as Central Banks cut rates
The European Central Bank (ECB) implemented its third consecutive rate cut of 25 basis points as inflationary concerns continued to dissipate. Third quarter GDP growth for the Eurozone surprised to the upside accelerating by 0.4% from 0.2% in the second quarter with a broad regional improvement. The disinflationary trends continued across developed markets with September data showing that inflation slowed across the UK, Canada, and New Zealand, prompting further rate cuts from their respective Central Banks.
Chinese authorities disappointed markets as they failed to provide further details as to the quantum of fiscal stimulus measures following September’s market moving announcements. Monetary policy continued to be eased as the People’s Bank of China cut rates by a further 25 basis points. Third quarter GDP met expectations, growing by 4.6% but remained below the 5% growth target. Industrial production and retail sales improved, as did factory activity, but the property market remains depressed with property investment down 10.1% year-to-date.
Major Market Indicators
Sources: Quilla, Refinitiv
The Outlook
Global markets have remained close to all-time highs despite recent weakness. A positive economic growth backdrop, resilient labour market data, and moderating inflation have underpinned investor sentiment. This, coupled with synchronised global Central Bank monetary policy easing, will likely continue to support global markets.
As we enter a seasonally positive period for equities, the upcoming US Presidential election adds an additional layer of uncertainty. Strong earnings results from large corporates are also supportive of the equity market outlook, but moderating growth expectations may weigh on equity markets where valuations remain higher than historical averages. Labour market data has been resilient, but underlying trends point to a softening in labour market conditions.
The current economic and financial market environment continues to support a "Soft Landing" scenario. However, risks persist, necessitating a balanced and adaptive approach to portfolio management to achieve investment objectives in this evolving landscape.
A Balanced Approach in Uncertain Times
October's financial landscape highlighted the complexity of navigating economic resilience and market volatility. While strong economic indicators provide optimism, global uncertainties, including the US election, remain. Staying informed is crucial as markets evolve.
For personalised insights or to discuss how these developments may impact your investments, contact our team today. We’re here to help.
For more insights into the September quarter's global economic and market trends, read our report, which comprehensively analyses the economic indicators shaping the investment landscape, helping you stay informed and make well-grounded financial decisions.
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