Market Overview

Summary of world markets in October

Uncertainty ahead of the US Presidential election weighed on share prices in the US and around the world during October. Major equity markets were choppy but generally fell over the month, although Japan bucked the trend, boosted by yen weakness.

Autumn Budget: In Labour’s first Budget since 2010, Chancellor of the Exchequer Rachel Reeves unveiled what the Office for Budget Responsibility (OBR)  described as “a large, sustained increase in spending, taxation, and borrowing”, including £40 billion-worth of higher taxes alongside increased investment1 in health, education, defence, housing, and infrastructure. The rate of employers’ national insurance contributions was increased from 13.8% to 15%; meanwhile, the lower rate of capital gains tax was raised from 10% to 18%, and the higher rate was raised from 20% to 24%. Inherited pension pots will be liable to IHT from April 2027. Income tax thresholds will remain frozen until 2028-29.

Budget reaction: The OBR  warned that the Budget represented “one of the largest fiscal loosenings of any fiscal event in recent decades”. As investors digested the Budget’s potential impact, the yield on the UK benchmark gilt  rose to a 12-month high, the pound  weakened against the US dollar, and sentiment towards medium-sized and smaller companies waned. Over October as a whole, the FTSE 100 Index  fell by 1.5%, while the FTSE 250 Index  declined by 3.2%.

Inflation eases: The annualised rate of consumer price inflation  moderated from 2.2% to 1.7% during September, reaching its lowest level since April 2021. In an interview with The Guardian, Bank of England (BoE) Governor Andrew Bailey  suggested that the central bank could be a “bit more aggressive” in cutting interest rates. Elsewhere, according to a survey  undertaken by the BoE, concerns over geopolitical risks have reached record levels among UK market participants, with 93% identifying geopolitics as the principal threat to the UK financial system.

UK growth set to pick up? The International Monetary Fund  expects economic growth in the UK to “accelerate,” raising its forecast for 2024 from 0.7% to 1.1% as lower inflation and interest rates “stimulate domestic demand”. The UK economy  grew by 0.2% during August following no growth in July or June. Growth was boosted by output in the manufacturing and construction sectors.

Dividend growth falls: According to Computershare’s Quarterly Dividend Monitor, headline dividends from UK listed companies fell by 8.1% to £25.6 billion during the third quarter, dampened by cuts in the mining sector, a strong pound, and lower one-off special dividends. On an underlying basis, dividends fell by 3.5% to £25.3 billion.

Inflation under control? “The global battle against inflation has largely been won,” according to the International Monetary Fund (IMF) , which upgraded its 2024 growth forecast for the US from 2.6% to 2.8%. France is tipped to expand by 1.1%, while Germany is set to stagnate. The IMF  also warned that investors are too complacent about risks posed by possible geopolitical shocks to asset prices.

Growth in US: Having grown by 3% year on year during the second quarter of 2024, the US economy  expanded at an annualised rate of 2.8% during the third quarter, boosted by stronger consumer and government spending. Minutes from the FOMC’s September meeting  showed that most policymakers were in favour of the 50 basis point cut but emphasised that the decision should not be construed as “evidence of a less favourable economic outlook”. Further monetary easing is widely expected; nevertheless, Fed officials appear to support a measured series of cuts in future. Although the Dow Jones Industrial Average Index  hit seven  new closing highs during October, it ended the month 1.3% lower.

ECB remains vigilant: The European Central Bank (ECB) cut its key interest rate  by 25 basis points during October. ECB policymakers expect inflationary pressures to pick up in the coming months and then to ease in 2025. The annualised rate of inflation  in the eurozone rose to 2% during October compared with September’s rate of 1.7%, dampening hopes of speedy monetary easing. Elsewhere, the eurozone’s economy  expanded by 0.4% during the third quarter. Germany sidestepped recession, posting economic growth of 0.2% following its 0.3% contraction in the second quarter, and the Dax Index  fell by 1.3% over the month.

Political upheaval in Japan: During October, the coalition led by Japan’s Prime Minister, Shigeru Ishiba, lost its majority . Although the ensuing uncertainty may undermine optimism in the longer term, investors welcomed a weaker yen  and the possibility of slower monetary tightening. Despite political upheaval, Japanese equity indices ended October higher as the weaker yen  boosted sentiment towards large exporting companies. The Nikkei 225 Index rose by 3.1% over the month.