In addition, markets were reassured that the Federal Reserve would maintain quantitative easing to support economic recovery. The American S&P 500 Index increased 4.6% during the month.
Janet Yellen was named as the new Fed Chairman to replace Ben Bernanke. Janet Yellen is a very experienced member of the Fed and she is widely expected to be more concerned about unemployment than inflation, which should see the economic stimulus maintained for longer. This accommodative stance has been welcomed by global markets.
Closer to home, the UK economy continued to show signs of improvement, with 0.8% increase in GDP in the third quarter, the best for 3 years. The economic pick-up appears to be broadly based, with recent business surveys and the Bank of England’s Agents’ Summary of Business Conditions highlighting the ongoing improvement in investment intentions.
The FTSE All-Share index was up 4.3% in October, bringing gains for the year to +19.5%. Oil and gas had a particularly good month, as well as life insurance, telecommunications and healthcare, partly as a result of a number of earnings upgrades from companies.
European markets had a strong month too, increasing by over 4%. In Italy, Enrico Letta’s government survived a confidence vote as Mr Berlusconi eventually gave his support. The European Central Bank (ECB) maintained rates at 0.5% and its president, Mario Draghi, said the Bank would consider all measures to combat weak growth and high unemployment. In Spain, GDP finally recovered in the third quarter to +0.1%, ending 9 months of recession. However, European unemployment remains a concern as it remained at a record high of 12.2%.
Encouraging Chinese economic data and an upturn in Indian trade gave markets in the Far East a boost. The Chinese economy is growing at 7.8%, an improvement from the second quarter 7.5%.The Indian stockmarket rallied to an all-time high as its central banker has taken tough action to stabilise market concerns after its woes in May.
Bonds generally fared quite well in October, with riskier fixed income assets outperforming the perceived ‘safe haven’ assets. The bond markets were largely focused on the US government shutdown and then the subsequent deal with increasing speculation that the Federal Reserve will not begin reducing asset purchases in the foreseeable future.
Outlook
Our view is that equity markets should continue to benefit as the global economic recovery takes hold. However, the recovery will be patchy and volatility is likely to continue since it will take many years for both public and private debt levels to return to more normal levels. In addition, concerns remain with regard to the financial strength of banks and the future of the Eurozone, as well as the US government finances, which will return to the spotlight in January 2014.
[Matthew Clark, Seabrook Clark Ltd, 5 November 2013]
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