Last week marked the end of a volatile month as global markets fell by $5.5 trillion in October, with the S&P 500 losing $2.1 trillion in value. Key drivers included rising US bond yields, fears of fresh US tariffs on China, and a potentially more challenging outlook for US corporate profits going forward. The recent strong annual earnings growth from corporate America has given rise to end of the cycle fears, particularly given that the positive effects of Trump’s tax cuts will start to fade as we move into 2019.
Investors also took confidence from signs of a potential breakthrough in the trade dispute between the US and China, with reports that President Trump wants to offer China a deal in time for the G20 meeting. However, a fundamental improvement in relations between the two countries will require more than words. This may be the case as China’s leadership signalled that further stimulus measures were being planned, following more disappointing economic data. China’s official manufacturing Purchasing Managers’ Index (PMI) for October was just above 50, suggesting that any growth expansion was marginal.
US jobs data came in much stronger than expected, providing an element of certainty surrounding December’s interest rate rise decision. The unemployment rate stayed at 3.7 per cent, the lowest since December 1969, while wage growth picked up to 3.1 per cent year-on-year.
There was some relief within Europe after rating agency Standard & Poor’s failed to downgrade Italy’s sovereign debt rating, although it did lower its outlook to negative, arguing that the new government’s policy plans were weighing on the country’s growth and debt prospects. Indeed, Italian manufacturing shrank the most in almost four years during October, signalling continued weakness after the economy failed to grow in the third quarter.
Central bank buying of gold hit its highest level since the fourth quarter of 2015. More than 148 tonnes of the precious metal were bought by the national banks in the third quarter, a rise of 22 per cent on the same period last year. Russia’s central bank led the buying, purchasing more than 92 tons of gold. This marked the country’s biggest quarterly net purchase on records that stretch back to 1993. Gold is often considered as a hedge against any fall in value of the US dollar and Donald Trump’s international policies have resulted in several countries announcing plans to try and reduce their use of the US currency.
Oil prices fell to a seven-month low after data from the US Energy Information Administration showed crude inventories in the countries rose for a second week. The US also granted waivers to eight counties to allow them to keep buying Iranian oil despite new US sanctions against the country coming into force this week.
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