Markets surprised with moves on the upside

3 min read

So much for worries about October and any intrinsic predilection for stock markets to fall in the month – they mostly moved higher, led by the buoyant US indices.

The Dow Jones Industrial Average led the big three US gauges higher, up 4.3%, while the S&P 500 gained 2.2% and the Nasdaq Composite Index added 3.6%.

October was the biggest monthly percentage gain for all three since February, and the seventh straight positive month for both the Dow and the S&P 500, while the Nasdaq posted its fourth straight monthly gain, to end the month at a record high.

Despite the effects of Hurricanes Harvey, Irma, and Maria, as well as the wildfires in California, US economic data mostly surprised on the upside, and continued to support stocks. However, there was some negative news earlier in the month, with the September jobs number showing a stalling labour market, with the US economy losing 33,000 jobs, compared to an average gain of 176,000 new jobs a month so far this year. It was the first time in seven years that the US monthly total had recorded a fall, and badly lagged the economists’ consensus, which had predicted an 80,000 job gain.

Growth remained a positive economic theme in the US with figures showing the US economy growing at a robust 3% annual pace in the third quarter, beating forecasts of 2.5% annual growth. The economy was helped by strong business spending, with non-residential fixed investment growing at a 3.9% annual rate in the third quarter.

In Europe, stock markets advanced in October, as Eurozone third-quarter GDP growth beat expectations, despite slowing slightly in the September quarter, from 0.7% growth to 0.6%, for an annual rate of 2.5%. The unemployment rate for September dropped to 8.9% from 9%, representing the lowest joblessness rate since 2009. The economic data helped markets absorb the turmoil in Spain, where Catalonia threatened a unilateral declaration of independence.

The STOXX Europe 600 Total Return rose 1.9%, closing October at its highest point since mid-May. In London, the FTSE-100 index added 1.6% for the month, while France’s CAC 40 rose by 3.2% and the DAX 30 benchmark in Germany gained 3.1%.

In Asia, events were dominated by the 19th Congress of the Chinese Communist Party, and in Japan, the snap election called last month by Prime Minister Shinzo Abe. The former saw the biggest shakeup in Chinese politics since the cultural revolution, and the enshrinement of Chinese President Xi Jinping as, in effect, China’s leader-for-life. In Japan, the gamble to go to an early poll paid off for Prime Minister Abe, whose ruling coalition won a two-thirds “super-majority” in the lower house of the Diet, allowing Abe to press for the continuation of his economic reforms and the amendment of Japan’s pacifist constitution, which he says is needed to respond to the North Korean situation.

The Japanese stock market liked the election outcome, with the Nikkei index pushing through 22,000 points for the first time since 1996, and posting a 6.7% surge for October. The Shanghai Composite Index added 1.3% for the month, while the Hang Seng Index in Hong Kong gained 2.5%. In Korea, the benchmark KOSPI Index gained 5.4%, taking its rise for the year to 25%, to a record close at month-end. The Morgan Stanley Capital International (MSCI) Index racked up its 12th straight rising month in October, its longest winning streak ever.

At home, the S&P/ASX 200 rose by 4% in October, its best monthly performance for the year, with the resources stocks generating 4.6% and their industrial counterparts 3.9%. The broader S&P/All Ordinaries index pushed through 6,000 points for the first time since the GFC.

On the commodities front, iron ore lost 5.7% off the back of pollution controls in China, and gold eased 0.7%, but Brent crude oil surged 6.7%, West Texas Intermediate (WTI) oil was up 5.2%, copper rose 5.3% and nickel surged almost 14% to its highest level since June 2015. Nickel has risen nearly 40% in four months, with nickel sulphate and electric vehicles exciting the market.

The US dollar had its strongest month this year, with the Aussie falling 2.1% against the greenback, ending the month at 76.60 US cents.

Information current as at 31 October 2017. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. 

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Information current as at 30 September 2017. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.