Global Market Review – October 2024

Global share markets fell in October. This reflected mixed quarterly earnings, stretched equity valuation and rising fears of higher longer-term inflation pushing up bond yields. However, falling interest rates and lower oil prices indicate a soft landing ahead, which should support global stock prices.

Global equities fell 2.0% in USD terms, but gained 3.6% in AUD terms upon Australia dollar weakness.

Equities start October stronger

US equity market sentiment improved at the start of October. The economy created more jobs in September and unemployment fell to just 4.1, helping push wages inflation up to 4.0%. This good news was followed by September inflation falling to a three-year low of 2.4%, despite stronger retail sales. This was viewed as consistent with a soft landing and further interest rate cuts over the coming quarters, helping drive share prices to new highs.

Eurozone inflation fell to 1.8% in September, placing it below the European Central Bank’s (ECB) 2.0% target. This allowed the ECB to reduce its key interest rate by 0.25% to 3.25%, which should help the region’s exporters who are dealing with China’s slowdown.

China announced further stimulus measures, cutting interest rates by 0.25% to 3.10%, while stronger September retail sales was a further cause for optimism.

Oil prices rose in early October upon rising tensions in the Middle East, but fell back, closing the month only slightly higher. This reflected hopes of de-escalation in the region following a limited Israeli response to an earlier Iranian missile attack on the country.

Share prices run out of steam

October saw a steep increase in 10-year Treasury yields, which soared 0.49% to 4.28%, (bond prices fall when yields rise). The US dollar also appreciated. Investors grew concerned that a Trump victory in November’s US presidential election would be inflationary, leading to higher interest rates over the longer-term. This reflects fears of looser fiscal policy, higher import tariffs and a less independent central bank under Trump. Higher bond yields increase equity discount rates, leaving US shares – currently priced at 26 times earnings – looking more vulnerable.

Weaker investor sentiment impacted US bellwether stocks which announced disappointing September quarter earnings reports, including American Express, Ford and Caterpillar.

Meanwhile, China stocks underperformed upon little sign of stimulus measures to support consumers. Economic growth slowed to 4.6% in the September quarter, casting doubt on the government’s 5.0% target for 2024. China’s model of high-tech exports was further challenged when the European Union announced tariffs on Chinese electric vehicles.

Australia slows, share prices fall

Australian share prices fell 1.3% in October, reflecting weaker iron ore, copper and natural gas prices. This also helped push down the value of the Australian dollar.

Weaker September quarter inflation was largely overlooked by analysts, as it was driven by time-limited government measures. However, underlying inflation fell back to 3.5%. September retail sales fell and October business conditions remained weak, as the Reserve Bank of Australia indicated interest rates will not fall this year.

This is now impacting the Australian housing market, where prices rose 0.2% in October, the smallest increase since January 2023, and auction clearance rates fell to a 21-month low. However, the prospect of rate cuts next year, slowing inbound migration, falling construction activity and the government leaving investment property taxation unchanged should limit any price falls.

Outlook

• ‘Higher for longer’ interest rates have slowed the global economy but services inflation persists
• Interest rates are expected to fall further this year across most developed economies, except Japan and probably Australia
• Slower consumer spending and weaker industrial output are impacting the earnings of some cyclical companies
• Geo-political risks remain elevated
• Stocks able to grow earnings through the business cycle should outperform as the economy slows