Research Insights | Market Commentary October 2023
October was marred by the start of the Israel-Gaza conflict with the devastating and continuing loss of lives for those in and around the conflict zone. This conflict currently shows no signs of abating and coupled with the ongoing Russia/Ukraine conflict, is impacting investors’ confidence with investors finding haven in assets such as the US Dollar and gold with the latter briefly rising above the key US$2,000/oz level.
The US third quarter Gross Domestic Product was higher than expected, expanding at an annual rate of 4.9% due to increased consumer and government spending. This surge in production activity saw US bond yields lift higher as markets react to the “higher for longer” cash rate rhetoric. In Australia, the resilience of consumers to higher cash rates saw the quarterly inflation print lifting to 1.2% in July-September (annualised at 5.4%), giving the Reserve Bank of Australia the green light for a Melbourne Cup Day rate hike after being on hold for the last four months.
Growth assets sold off in the month due to the uncertainty around the Israel-Gaza conflict coupled with the further rise in bond yields as economies continue to shrug off the rising interest rate environment, further testing central bankers’ resolve. Australian large cap Equities fell by 3.6% with only the Utilities sector in the black. US reporting season had no major surprises however future guidance was a little weaker than anticipated. Hedged global equities fell by 2.7% whilst unhedged global equities declined 1.0%, as the Australian dollar declined by 1.5% over the month to US$0.6337. Australian Real Estate Investment Trusts (AREITs) declined by 5.8% due to their valuations being impacted rising bond yields.
The Australian 10-year government bond yield increased by 44bps to 4.93% and the 2-year government bond yield increased by 38bps to 4.46%. The US 10-year government bond yield rose by 36bps to close at 4.93% and the US 2-year government bond yield increased by 4bps to 5.08%.
Key Developments Post Month-End
The RBA met on 7th November and decided to increase the cash rate by 0.25% to 4.35% with the market also pricing in a chance of another rise 0f 0.25% in December.
The RBA noted that “inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected”.
Benchmark Returns
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