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Monthly markets review - October 2023

Stocks and bonds both fell in October amid expectations of higher for longer interest rates.

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The month in summary

Global shares fell in October amid worries that US interest rates may remain higher for longer given still strong inflation. The geopolitical situation was another concern for investors amid renewed conflict in the Middle East. Bonds also fell, with yields rising sharply. Gold rose as investors sought safe haven assets.


US equities fell in October, as the date for the expected end to the Federal Reserve’s (Fed) tighter policy environment was pushed back. Inflation remains elevated and the broader US economy is still very robust. The war in Ukraine continues, and fresh conflict flared in the Middle East.

The US economy expanded at an annualised rate of 4.9% in Q3 2023, exceeding market forecasts of 4.3% growth and accelerating from the 2.1% advance in the second quarter. The expansion was largely driven by strong consumer spending. Over the 12 months to the end of September, inflation as measured by the consumer price index (CPI) has risen by 3.7%, unchanged on previous month’s reading. Industrial activity as measured by the latest purchasing managers’ index (PMI) also suggested expansion, with the flash composite hitting 51.0 in October, up from 50.2 in September (a reading over 50 signals expansion).

Citing the “range of uncertainties, both old and new”, Fed chair Jerome Powell indicated that policymakers had not ruled out further tightening, with rates already at a 22-year high.

Energy stocks were among the weakest performers in a month that saw almost all sub-sectors decline. Consumer discretionary stocks also saw notable declines. Utilities were more resilient, while IT and consumer staples also held up comparatively well.


Eurozone shares declined. The traditional safe haven sectors of utilities and consumer staples posted small gains for the month. Energy and information technology also proved relatively resilient. Other sectors saw steeper falls. Healthcare was among the weakest performers after a large pharmaceutical company announced a lower profit outlook for next year.

The European Central Bank (ECB) held interest rates steady at its October meeting, breaking a series of 10 consecutive increases. The end of the month brought data showing annual inflation had fallen to 2.9% in October from 4.3% in September. News that inflation is returning closer to the ECB’s 2% target added to expectations that this rate-hiking cycle may be over. 

Higher interest rates have also weighed on growth. Data showed that the eurozone economy contracted in Q3, with the preliminary flash estimate of GDP showing a decrease of -0.1% compared to the previous quarter. The flash HCOB eurozone purchasing managers’ index showed that the economic downturn deepened in October with the composite reading of 46.5, a 35-month low and down from 47.2 in September.


UK equities fell over the month. The large UK banks performed poorly amid concerns around the impact of higher interest rates on the performance of their lending businesses and mortgage books in particular. Related concerns around the health of the UK consumer were also reflected in a number of other domestically focused sectors, whose poor performance weighed on UK small and mid cap (smid) equities.

Long-term market interest rates rose again over October as gilts resumed their sell-off following a period of relative stability seen during the summer. At the same time there was deterioration in the UK economic outlook. This included a sharp drop in consumer confidence, a decline in key purchasing manager indices (particularly in those tracking the construction sector) and news of further house price falls.

As a result of these top-down trends several consumer discretionary sectors gave up on the recoveries they enjoyed over the summer. Many of these sectors had rebounded as stable market interest rates fed through into falling mortgages rates. As a result of this reversal many previous top performers in the housebuilding, retail and travel & leisure sectors, became big detractors to UK smid indices in October.

The Office for National Statistics revealed that the Consumer Prices Index (CPI) remained unchanged at 6.7% year-on-year (y/y) in September, versus expectations of a slight moderation to 6.6%. And, while the core CPI inflation rate dropped to 6.1% y/y, it was still slightly above consensus forecasts for 6%. This all added to concerns that the UK may be in line for a long inflation battle, even as the economy slows.


The Japanese equity market declined in October, with the TOPIX Total Return index falling by 3.0% in local terms amid weaker investor sentiment. The persistent rise in long-term yields in both the US and Japan continued to benefit financial stocks. In Japan, regional bank stocks saw a boost from their depressed valuation levels. Additionally, energy stocks increased due to the conflict in the Middle East. However, the technology sector was weak, and growth stocks, especially in the small cap space, continued to suffer.

US Treasury yields were pushed up by stronger-than-expected macroeconomic figures, and JGB yields followed suit, creeping up to 0.9% for the 10-year. The weakening of the yen against the US dollar due to the hike in US yields put pressure on the Bank of Japan (BOJ). Consequently, during the monetary policy meeting on 31 October, the BOJ decided to further adjust its yield curve control policy, letting the 10-year JGB yield rise above 1.0% by declaring that level to be a reference rather than a limit. From a Japanese macroeconomic perspective, inflation remains resilient, and the BOJ also raised its CPI forecasts for the next three fiscal years, surpassing the 2% inflation target even for the fiscal year 2024.

First half corporate earnings results were released later in the month, with initial numbers showing weakness in technology companies, but the revision index remained positive. Domestic-oriented companies and auto-related companies followed and announced much stronger results, which gradually supported market sentiment.

Asia (ex Japan)

Asia ex Japan equities were weaker in October, with all index markets ending the month in negative territory. There was a broad sell-off as concerns over rising interest rates and geopolitics weakened sentiment. Pressure on equities from higher interest rates has been exacerbated by the conflict in the Middle East, which has driven a flight towards assets perceived as safe havens, such as gold.

Indonesia, South Korea, and the Philippines were the weakest index markets in October. In South Korea, chip makers were under pressure in the month amid investor fears of a global economic slowdown. The sell-off came despite positive economic data released in the month, showing that the country’s economy grew by 0.6% in the third quarter compared with the previous quarter.

Shares in Mainland China also fell in the month, with investor sentiment towards China continuing to weaken due to the country’s economic slowdown. The ongoing real estate debt crisis has also added to investor concerns. Hong Kong share prices also fell in October, as foreign investors reduced their exposure to China and on concerns over ongoing US-China tensions.

Emerging markets

Emerging market (EM) equities lagged their developed market peers over the month against a backdrop of rising yields and conflict in the Middle East.

Turkey was the biggest underperformer as the currency weakened against the dollar. The central bank continues to tighten, raising the policy rate to 35%in October. However, inflation is above 60%. Korea also lagged the index while GCC markets, including UAE, Qatar and Kuwait, fell too, impacted by the nearby conflict and softer energy prices. China was behind the index despite some positive economic data releases, including better retail sales and higher tech exports, and an apparent easing in US-Sino relations given confirmation from the White House that presidents Biden and Xi are due to meet in November.

Brazil marginally outperformed, as did Thailand and India. South Africa and Taiwan both delivered negative returns but these were ahead of the index. In South Africa, a weaker currency, rising yields and softer platinum group metals (PGM) prices were negative for sentiment, while in Taiwan the picture was more positive with improvements seen in tech exports and manufacturing.

The remaining markets gained in US dollar terms. Czech Republic, Greece and Hungary posted marginally positive returns while Egypt and Poland were the top performers. In Poland, sentiment was supported by the electoral victory of Donald Tusk’s pro-European Civic platform which unseated the ruling party in an election that saw record high turnout.

Global bonds

Throughout October, the prevailing narrative driving bond markets was the expectation that interest rates would need to remain high for an extended period. Factors such as a robust US labour market, persistently high inflation, and growing concerns over US Treasury supply kept the pressure on US yields.

The US curve steepened, with the 30-year yield surpassing the 5.0% mark for the first time since 2007. The tightening of financial conditions lowered expectations of an imminent rate hike by the Fed, as the higher yields have already been contributing to tightening monetary policy conditions. The US 10-year yield increased from 4.57% to 4.91%, while the two-year yield climbed from 5.05% to 5.10%.

The European Central Bank (ECB) kept rates stable, as expected. However, the lack of discussion about potentially moving up the December 2024 end-date for reinvestments from its Pandemic Emergency Purchase Programme (PEPP) was unexpected, with a recent rise in Italian bond yields being one likely reason. Italy’s finances were brought back into the spotlight with the release of the government's 2024 Budget. In October the Italian 10-year yield decreased during the month from 4.79% to 4.73%, and the 2-year yield fell from 4.02% to 3.85%.

European rates outperformed other markets, with yields falling across shorter maturities. Germany's 10-year Bund yield dropped slightly from 2.84% to 2.81%, and the two-year yield came down from 3.21% to 3.07%. Spain also saw a drop with its 2-year yield coming down to 3.43% from 3.60% the previous month.

UK data generally underwhelmed, with consumer sentiment indices and weak retail sales contributing to a pessimistic tone. Despite a moderation in wage growth, services inflation - a key concern for the Bank of England (BoE) - remained persistent. The gilt yield curve steepened, with short-term yields declining compared to a modest increase in long-term securities. The UK 10-year yield increased from 4.44% to 4.52%, while the two-year yield decreased from 4.90% to 4.78%.

Emerging market sovereign investment grade (IG) and high yield (HY) outperformed developed markets over the month in excess return terms despite the conflict in the Middle East. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.)

The Bank of Japan (BoJ) made minor tweaks to its yield curve control policy, introducing more flexibility around the upper limit at the 10-year point. This fell short of market expectations that had anticipated a more substantial change. BoJ Governor Kazuo Ueda cited the bigger-than-expected increase in US Treasury yields as the primary factor behind the latest move.

Dollar gains were more modest compared to other major currencies. Over the month, both the euro and Swiss franc appreciated, while the Norwegian krone notably lagged as oil prices softened.

On the credit front, IG corporate bond spreads (both EUR and USD) widened, indicating underperformance relative to government bonds. HY bonds fared the worst, delivering negative total returns and underperforming government bonds. Gross issuance underwhelmed in October. Euro IG gross supply dropped to €20 billion from €55 billion in September, while US IG supply was only $83 billion, down from $141 billion in September.

Convertible bonds could not escape the equity market headwinds and the Refinitiv Global Focus finished the month with a loss of -3.1%. Primary markets slowed down in October with $5.2 billion of new convertibles being launched.


The S&P GSCI Index fell in October. Precious metals was the best performing component. The price of gold was sharply higher as renewed conflict in the Middle East prompted investors to seek assets perceived to be safe havens. Within the energy component, natural gas prices rose amid concerns over risks to supply stemming from damaged pipelines as well as the Middle East conflict. Energy otherwise saw declines for crude oil, heating oil and gas oil. Agriculture also gained, with sharply higher prices for coffee and cocoa. Within industrial metals, the price of zinc was sharply lower, while price falls for aluminium, copper, lead, and nickel were more modest.

Overview of markets in October 2023Overview of markets in October 2023

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