Major stock indices posted a broad recovery during October despite the absence of particularly positive news from the Ukrainian war and inflation fronts. The European Central Bank raised rates by an additional 75 basis points to 2% in an attempt to contain inflation now above 10%, but this did not provoke negative reactions in the markets. This is because the move was widely expected and secondly, because President Christine Lagarde stated that the potential impact of a recession on inflation will be a key variable in upcoming decisions. The U.S. Central Bank’s statements also remain tight-lipped by projecting further hikes not only by the end of 2022 but also until at least mid-2023. All this despite several adverse factors such as the war that shows no sign of abating (with nuclear threats), the energy crisis, the trade wars, the less-than-stellar quarterly results especially for tech companies (see Amazon and Meta that set new lows) and a slowdown in the economy should lead to a softer attitude on the monetary policy side.
On the financial markets front there has been a positive development, triggering the long-awaited and hoped-for year-end rally. The MSCI World stock index gained on a monthly basis 7.10% settling at -20% since the beginning of the year. The major U.S. indexes also performed well with S&P500 +8%, -18% year to date, Nasdaq +3.90% (-29% YTD) penalized more by the worse-than-expected quarterly results of major tech giants such as Meta, Alphabet, Microsoft and Amazon. Good performance in Europe as well with Euro Stoxx 50 index +9%, which, however, still remains in negative territory when it comes to annual performance -16%. Next in line were the major indexes DAX +9.41%, FTSI MIB +9.70% but also down YTD -16.50% respectively -17.20%. In Switzerland, the trend has been more modest but still positive development on a monthly basis +5.50%, down -15.90% since the beginning of the year. China’s economic difficulties, grappling with a still unclear 20th Communist Party Congress on the subject of zero Covid policy, weighed on the Emerging Countries Index, which lost -2.68% (-24.73 YTD).
On the currency front, there was a slight recovery of the euro against the dollar, slightly above parity which temporarily halted its rally against the pound. After only six weeks in power, in fact, British Prime Minister Liz Truss had to resign. Her GBP 200 billion program of tax cuts and subsidies, with no financial cover, had caused government bonds and the pound to plummet, forcing the Bank of England to intervene. The Finance Minister’s resignation and complete reversal on the tax plan were not enough to restore Liz Truss confidence in the Party, and resignation was inevitable.