Written by Chris Ayton
Global equity markets got spooked going into the Halloween weekend with the MSCI All Country World Index (a broad measure of global stock markets) ending the week down -0.4%. Bond markets proved a reasonable safe haven with the Bloomberg Global Aggregate Index up +0.4% for the week in GBP hedged terms.
At home, UK equity, fixed income and the currency market shrugged off a relatively uneventful first budget for the new UK Chancellor, John Healey. Markets had expected a “do no harm” statement and, although there was some slippage in the country’s forecast financial position, this was broadly what he delivered. Housebuilders were the notable underperformers after it became clear that significantly fewer homes will be built than Labour’s original manifesto target, combined with some disappointment with the timing and breadth of the government’s new Home Loan Scheme. An additional tax on UK banks’ profits was a lower than expected, although mildly disappointing profit statements from Lloyds, NatWest and HSBC saw the sector suffer a challenging week nonetheless. Overall, the FTSE All-Share Index ended the week up +0.4%.
Technology and Artificial Intelligence (AI) related shares in the US endured a volatile week, culminating in a sharp drop towards the end of the week as Intel shares fell 29% in one day, its largest drop since 1974, after the company warned of weaker demand and much larger than expected costs being incurred in its AI infrastructure buildout. This news followed soon after both Amazon and Google’s parent, Alphabet, had also fallen sharply as deteriorating cashflows and rising expenditure commitments spooked investors. The S&P 500 Index finished the week down -0.6% with the technology-dominated Nasdaq 100 Index giving up its earlier gains to end down -2.0%.
In Asia, the Bank of Japan declared victory in its attempt to defeat decades of deflation (falling prices) and get its inflation rate up to a healthier and more sustainable 2% level. With inflation now creeping above that target and forecast to rise further, there is an expectation that interest rates will be modestly increased again at the end of the year, although they were held at 1.25% at the latest meeting. The Topix Index of Japanese shares were down -0.4% over the week, although this was entirely due to the Yen being weak versus Sterling.
Within Emerging Markets, Brazilian equities fell more than -20% over the week after the shock re-election of left-wing President, Luiz Inácio Lula da Silva, sent the stock market and Brazilian Real into a downward spiral as the candidate perceived as more business friendly, Flavio Bolsonaro, unexpectedly lost the second-round run-off having led after round one. Lula’s promise of a range of giveaways, debt forgiveness and increased welfare benefits saw him overtake Bolsonaro at the finish line but his victory reignited fears over the government finances and management of the economy. It also reduced the near-term likelihood of the fiscal reforms that are so badly needed in order to see an end to the double-digit interest rates that are harming the Brazilian economy. This pullback in Brazil combined with ongoing weakness in China helped push the MSCI Emerging Markets Index down -0.8% for the week, rounding off a challenging October that saw the same index down nearly -9% over the month as a whole.
With global events continuing to create uncertainty, our portfolios remain well diversified and positioned to navigate changing market conditions.
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