On the geopolitical front, there was rising tension in the Middle East last month after Iran got involved in the conflict between Hamas, Hezbollah and Israel. Other than a somewhat rising oil price, financial markets didn’t really care much. The focus was more on the growth and inflation numbers. The U.S. labor market is in good shape. The number of new jobs was higher than in previous months and also higher than expected. In Europe, the ECB cut policy rates again by 0.25% (to 3.25%). Germany seems to be struggling to keep growing. One example is the auto sector, where consultations have been taking place between different brands in an attempt to improve the situation.
Shares
In October, equity markets were slightly positive on balance. The differences between regions and countries were not as large as in September, but still significant. The broad index MSCI All Countries World gained +0.5% at the bottom (measured in euros). Developed markets outperformed emerging markets, earning a +0.8% return. However, this was only due to North America (+2.0%). The remaining regions Japan (-1.2%), Europe (-3.3%) and Pacific excluding Japan (-3.7%) took a step back. Among emerging markets (-1.8%), no region was even able to put green numbers on the boards. China was the big winner last month, but now lost 3.3%. That loss was slightly larger than that of Latin America (-2.5%) and Asia (-1.9%). The EMEA region kept the damage contained with a loss of 0.5%. Style growth stocks (+0.7%) outperformed style value stocks (+0.2%).
Bonds
On the interest rate front, a few things stood out in October. First, we saw differences in maturities: 5-year and 10-year rates were higher, while shorter and longer maturities (1-year, 20-year and 30-year rates) were lower. Second, there was a significant difference in the extent to which individual countries’ interest rates rose relative to European rates. Euro swaps (10-year rates) rose by 0.08%, while Germany, for example, rose by 0.27% for the same maturity. Finally, we again saw that interest rates in America rose faster than in Europe.
Interest rate development (10-year rates) for Dutch government bonds (+0.23% to 2.65%) was reasonably in line with German government bonds (+0.27% to 2.39%). However, the rise in the U.S. was significantly higher: +0.50% to 4.28%. The picture was different for bonds with a higher risk profile. Less risky corporate bonds experienced a 0.12% drop in the risk premium (to 1.01%). This was slightly less than the decline in more risky corporate bonds (-0.18% to 3.04%). The largest decline was seen in emerging market government bonds (-0.23% to 3.38%).