Global Market Review – October 2023

Global Market Review – October 2023

Global share markets continued moving lower in October. This followed the outbreak of hostilities in the Middle East, persistent inflation pushing bond yields higher, and some mixed company earnings results. Growing expectations that interest rates may now have peaked in most developed economies should provide a better platform for global equities.

Global equities fell 1.0% in Australian dollar (AUD) terms during October, while ten-year US Treasury bonds soared a further 0.35% to finish the month at 4.93% (prices fall when yields rise).

Share markets fall upon gloomy sentiment

Stronger global economic activity and expectations that interest rates may have peaked helped share markets start the month strongly.

However, the 7 October terrorist attacks in Southern Israel hit global equities, as oil prices increased upon fears of Iranian involvement, threatening oil supplies. Yet, signs the war would be contained reversed this trend, with oil finishing the month lower at US$85 per barrel.

US inflation has fallen steeply since peaking at 9.1% in June last year. However, it now appears “sticky” and unlikely to return quickly to its 2.0% target, remaining unchanged at 3.7% in September.

Expectations of ‘higher for longer’ interest rates to control inflation pushed up longer-term bond yields. This impacted share markets, with the US market ending October 9% below its July peak. Nonetheless, growth stocks outperformed value as investors became particularly concerned about the impact of weaker consumer spending on corporate earnings growth.

The peak in interest rates is better news for global equities

Lower goods and travel inflation enabled the European Central Bank and the Bank of Canada to keep their rates unchanged in October, with others expected to follow in November.

Global interest rates are expected to remain elevated but have now likely peaked, limiting the upside in bond yields. This will support share prices – especially growth stocks – as investors look forward to eventually lower interest rates.

Cloud-focussed Amazon and Microsoft delivered stronger than expected third quarter earnings results. However, the more economically sensitive BP and Estee Lauder underperformed upon disappointing profit numbers.

Measures to stimulate China’s sluggish economy helped it grow 4.9% in the September quarter, faster than markets had expected. This makes China’s 2023 GDP growth target of 5% look more achievable, despite its structural weakness and overleveraged real estate sector.

The US economy remains resilient, expanding 4.9% during the third quarter and creating more jobs, suggesting global equities can perform reasonably well over the medium term.

Australia faces stubborn inflation

Australian shares fell 3.9% during October and are now down 10% since the share markets peaked in late July. Iron-ore prices edged up, but coal finished weaker.

Inflation fell from 6.0% to 5.4% in the September quarter, which was slower than expected. Sticky inflation reflects Australia’s relatively lower cash rates, expansionary fiscal policy (especially at a state level), a housing shortage driving up rents, and weak productivity growth.

This leads many economists to expect the Reserve Bank of Australia (RBA) to raise the cash rate a further 0.25% from its current 4.10% in November. Some also believe Australia has now developed a higher neutral interest rate or r*.

Higher rates may restrain Australia’s housing market, which jumped a further 0.9% in October according to CoreLogic. The market has now gained 7.6% since the market bottomed in January this year, as high migration and weak supply offset the impact of higher mortgage rates.


  • Higher interest rates are slowing the global economy but inflation remains sticky
  • Interest rates are now at or close to their peaks, but are set to remain elevated for an extended period
  • Higher interest rates are slowing consumer spending and industrial output, impacting the earnings of some cyclical companies
  • Geo-political risks may bring greater near-term share market volatility, but stocks able to grow earnings through the business cycle should outperform as the economy slows
  • Real returns from cash and government bonds remain low

Where does this leave investors?

While economic activity and corporate earnings continue to slow gradually, there is little sign of a near-term recession. Pengana portfolios are firmly focused on companies able to grow earnings during a period of elevated interest rates and subdued consumer spending.

These include businesses with a technological advantage – especially in AI, groups engaged in factory automation and onshoring, pharmaceutical companies able to secure drug approvals, luxury goods houses with strong brand loyalty, disintermediated consumer brands, and healthcare providers able to pass through rising costs as demand expands.

Companies with highly cyclical earnings, strong exposure to discretionary consumer spending, high borrowings, or unsustainable business plans are viewed cautiously.

Stimulus measures in China should bring opportunities for well-managed businesses exposed to its pivot towards consumption, rather than those dependent on exports or Western technology.

Tim Richardson CFA, Investment Specialist

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