Economic Review
Global Equity Markets
Global Shares made a sharp recovery in October after their very weak performance in September. Hope that central banks would moderate the pace of interest rate increases was the key positive driver for this share recovery. However persistent high inflation and the Russia – Ukraine conflict are still casting a shadow over global financial markets.
Wall Street’s share indices made a strong rebound in October. The primary catalyst was media reporting that the Federal Reserve (FED) was considering reducing the scale of further interest rate rises after the 0.75% increase in September. US shares also gained some comfort from stabilisation in price pressures with US CPI inflation coming in at 8.2% in the year to September. Business surveys also suggest that US inflation may be peaking with lower input costs and the benefit of a strong US Dollar. Yet there are worrying signs that US economic activity is slowing with softer consumer spending and housing data. This has significant negative implications for US corporate earnings prospects.
European share markets also recovered despite concerns over energy supply arising from the Russia – Ukraine conflict, high inflation and rising interest rates. European inflation reached a new multi-decade high of 10.7% in the year to October. The European Central Bank (ECB) also increased interest rates by 0.75% in October and gave guidance that further interest rate rises can occur.
Britain’s financial markets also appear to be stabilising after a tumultuous September. The arrival of a new UK Prime Minister in Rishi Sunak after the sudden exit of former PM Liz Truss appears to have calmed financial markets.
Asian share markets were mixed. The Chinese market slumped given China’s subdued economic activity, fragile property sector and concerns over the impact of the national government’s Zero Covid strategy. However other Asian markets generally recovered. Japanese shares made solid gains with the central bank confirming their commitment to maintaining zero interest rates and continued buying of government bonds.
Table 1: Global share market performance – October 2022
US S&P 500 +8.1%
US Dow Jones +14.1%
Euro Stoxx 50 +9.0%
German DAX +9.4%
UK FTSE 100 +3.0%
Japan Nikkei 225 +6.4%
China Shanghai Composite -4.3%
Source: Factset, financial data and analytics, October 2022
Australian share market review
Australian shares made a strong recovery in October. The sharpest gains were in financial sector shares given solid credit demand and assurances from the Reserve Bank (RBA) that business and household balance sheets were in strong shape. The real estate and consumer discretionary sectors also made robust gains reflecting the comforting commentary from the RBA. There was also a favorable performance from the energy sector on continuing concerns about global supply. The resources sector was more subdued with a slight gain given worries about global economic activity prospects.
The Australian Dollar (AUD) fluctuated against the US Dollar (USD) during October but finished the month flat at USD 0.6398.
Table 2: Australian share market performance – October 2022
S&P/ASX 200 Accumulation Index +6.0%
S&P/ASX 200 Industrials Total Return Index +7.8%
S&P/ASX 200 Resources Total Return Index +1.5%
S&P/ASX Small Ordinaries Total Return Index +6.5%
S&P/ASX 200 A-REIT Total Return Index +9.9%
Source: Factset, financial data and analytics, October 2022
Large Caps (S&P/ASX100)
Industrial stocks outperformed in October. Having been one of the poorest performers in August and September, Domino’s Pizza Enterprise (+23.7%) was October’s best performer. It was followed by Challenger (+20.0%) and Westpac (+16.8%). Medibank Private (-19.0%) fared worst following its announcement of a cyber-attack. The slump in the iron ore price impacted the share price of Fortescue Metals (-12.6%), with Oz Minerals shares also down (-6.3%).
Listed property
The S&P/ASX 200 AREIT Total Return Index bounced back strongly (+9.9%) in October, compared to the 6.0% increase in the S&P/ASX 200 Total Return Index. The Retail AREITs (+13.1%) were the standouts followed by Diversified AREITs (+10.2%) and Industrial AREITs (+8.2%). The poorest performer was the Office AREIT sector (+0.9%).
Written 3 November 2022.
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