October is a month, that has over the years had its moments, however this month with one day to go, looks to be one of the less eventful. A quick glance across asset classes records that the MSCI World Index is little changed in the month of October. The Vix index, which is considered to represent the level of fear and greed amongst money managers, has risen from just above 13 at the start of the month to close on Friday at 16. Currencies were a big talking point over the month, particularly the weakness of the pound as it lost about 5% against the USD dollar and close to a similar amount against the euro. The dollar did lose a little ground at the end of the month against its basket of currencies, but overall gained about 3% in October as investors become more confident the Federal Reserve will hike in December.
Bond yields across the globe rose for choice, as the economic data in the second half of the year has improved relative to the first six months of 2016. Yields in UK gilts have risen sharply over the month, the year 10-year gilt yield closed on Friday at 1.26%, up 0.5% from the start of the month. Yields on ten year US treasuries have likewise risen, to close on Friday at 1.86%, a multi month high. However, yields remain lower than they were at the start of the year.
The Dow Jones Transport Index, considered another indication of economic strength, finished the month marginally lower than it started the month. In contrast the Reuters commodity index closed the month marginally higher despite the stronger dollar. The price of oil, closed back below $49 a barrel on Friday, having traded earlier in the month above $51 on hopes of production cuts. Gold, which divides investors more than any asset class, has failed to hold above $1300 but has appreciated modestly in value based in US dollars over the past 30 days.
Looking to the month ahead the US election will probably dominate investors’ minds as much as Brexit did in the summer. The spanner appears to be thrown into the works over the weekend as the FBI announced it was reopening its investigation into her emails. The trading index’s which had offered relatively long odds in a two-horse race of 5/1 against Donal Trump winning have now shortened to 4/1. An interesting piece in Sunday’s Telegraph by Gary White titled “If Trump wins the brave can cash in on equity jitters”, makes interesting reading.
Looking to the immediate, the third quarter earnings season is generally coming in overall ahead of expectations. The year on year earnings are expected to go 1.6% for the third quarter for S&P 500, the first time in 5 quarters. On Wednesday, we get the latest Federal Reserve interest rate decision. There is no expectation for the Fed to act ahead of the Presidential election.
Likewise, on Wednesday the Bank of England release the minutes of the last rate setting meeting along with the latest interest rate decision. Also, released on Wednesday is the Banks quarterly inflation report. With the recent weakness in sterling this report will draw much attention.