Market Key Points
- Major equity markets around the world continued the positive momentum in October.
- Early-month geopolitical tensions in the US faded as positive trade negotiations with China and solid corporate earnings pushed US equities back to near record highs.
- Emerging markets continue to outperform versus developed markets, whilst global small caps underperformed large.
Australian equities
The S&P/ASX 200 Accumulation Index rose 0.4% in October, with seven of 11 sectors finishing higher. Materials (+4.3%) led gains as gold, iron ore, and copper prices strengthened, while Energy (+3.7%) also performed well. In contrast, Information Technology (-8.4%), Consumer Discretionary (-6.8%), and Health Care (-4.8%) were the weakest sectors. The S&P/ASX 200 Small Ordinaries Index continued its upward trend, gaining 1.9% in October and up 22.8% over the past 12 months, outperforming the broader market as capital rotation into resource stocks persisted.
Top performers included Clarity Pharmaceuticals (CU6), which surged 37.6% on positive trial results, and Domino’s Pizza Enterprises (DMP), which rebounded 35.9% on takeover speculation. Conversely, WiseTech Global (WTC) fell 23.4% after its Sydney headquarters was raided by the AFP over suspected insider trading involving former executives, while Bapcor (BAP) dropped 20.2% following a weak trading update.
Economic data showed employment growth slowing, with only 14,900 new roles added in September and unemployment rising to 4.5%, the highest since November 2021. Inflation surprised to the upside, with CPI climbing to 3.2% in Q3 from 2.1% in Q2, marking the highest level since Q2 2024 and exceeding expectations of 3.0%. This hotter inflation reading ruled out an RBA rate cut in November and raised doubts about a February cut.
Global Equities
Global equities rallied again in October, with Developed Markets up 3.3% (MSCI World Ex-Australia Index, AUD). US equities remained strong, with the S&P 500 gaining 2.3%, now up 21.5% over the past year, supported by easing US-China trade tensions and another robust earnings season. Growth (+4.7%) and Quality (+2.4%) outperformed Value (+0.1%), while Momentum (+0.6%) slowed. Global small caps returned 1.4%, continuing to underperform.
European markets were broadly positive, with the UK’s FTSE 100 up 3.9%, Germany’s DAX up 0.3%, and the FTSE Eurotop 100 rising 2.5%. Japan’s Nikkei 225 surged 16.7%, driven by optimism following the election of Japan’s first female prime minister, who pledged expansionary fiscal and monetary policies.
US inflation edged up to 3.0% in September from 2.9%, while core inflation eased slightly to 3.0%. Monthly core inflation rose 0.2%, below expectations. The Federal Reserve cut rates by 25bps for the second consecutive month, bringing the federal funds rate to 3.75–4.00%, the lowest since 2022. Policymakers cited downside employment risks and persistent inflation but noted that a December cut is not guaranteed amid uncertainty from the ongoing government shutdown.
Commodities posted solid gains, with the S&P GSCI up 1.3%. Copper rose 6.3% as supply disruptions at Freeport’s Grasberg mine continued, iron ore gained 4.0% on Chinese demand strength, and gold climbed 3.7%. Oil prices fell 2.2% on oversupply concerns
Emerging Market Equities
Emerging market equities rose strongly in October, gaining 5.5% (MSCI Emerging Markets Index, AUD) and outperforming developed markets. In China, the CSI 300 was flat, as ongoing trade negotiations between President Trump and President Xi Jinping supported sentiment. Economic data was mixed: consumer prices fell 0.3% year-on-year in September, a sharper decline than expected, while GDP growth met expectations at 4.8% for Q3, down from 5.2% in Q2. Industrial production surprised to the upside, rising 6.5% year-on-year, while retail sales slowed to 3.0%, slightly better than forecasts but weaker than August’s 3.4%.
Fixed Income
Bond markets saw mixed movements in October. U.S. 10-year Treasury yields fell 7bps to 4.08% as softer inflation rhetoric prompted the Federal Reserve to cut rates by 25bps to 3.75–4.00%. However, Fed Chair Jerome Powell signaled caution on further cuts, dampening expectations for December easing. UK Gilts rallied, with 10-year yields dropping 30bps after the Bank of England adopted a dovish tone amid weaker inflation and growth concerns.
In contrast, Japan’s government bonds underperformed, with 10-year yields rising sharply on expectations that new Prime Minister Sanae Takaichi’s expansive fiscal agenda will boost supply. Domestically, Australian bond yields were flat at 4.30%, as hotter inflation data ruled out a November rate cut and markets now see little chance of easing in December.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index rose 0.6% in October, lifting rolling 12-month returns to 7.4%. Global real estate equities declined 0.8% (FTSE EPRA/NAREIT Developed Ex Australia Index, AUD Hedged), while global infrastructure posted a modest 0.5% gain (S&P Global Infrastructure TR Index, AUD Hedged).
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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