Eastspring Investments
5 min read
Summary
Global equities declined in October with sentiment under pressure as the US 10-year Treasury yield continued to rise on the expectation of “higher for longer” US interest rates and the start of the Israel-Hamas conflict dampened sentiment.
Market update
Equities: A broad-based sell-off returned in October. Global equities declined with sentiment under pressure as the US 10-year Treasury yield continued to rise on the expectation of “higher for longer” US Federal Reserve (“Fed”) rates and the start of the Israel-Hamas conflict dampened risk appetite. US equities largely led the DMs, supported by strong economic data, including GDP growing at a better-than-expected annualized 4.9% rate during the third quarter. Chinese equities were relatively weak, with the ongoing weakness of the property sector, mixed economic data and the news of further US restrictions on chip exports to China weighing on sentiment. ASEAN markets underperformed the broader Asian region and Emerging Markets (“EM”) during the month; South Korea equities were among the biggest laggards amid heavy foreign sell-off.
Fixed Income: The resilience of the US economy has seemingly increased the term premia of US Treasuries. The US Treasury yield curve increased by double-digits primarily along the key tenors, with the US 10-year yield up by +29bps to 4.88%, up from 4.59%. The Bloomberg Barclays Global Aggregate index was down 1.2%. In credit, US High Yield was down 1.2%, faring better than its Investment Grade counterpart’s 1.8% decline. Asian Credit (JACI) was among the better performers in fixed income, down 0.65%.
Macro overview
Growth: While global growth has held up stronger than expected, especially during the first half of 2023, positive momentum in the global economic environment is seemingly slowing down overall with consensus expectations of a ‘soft landing’ on track. October 2023 global PMI data are sending signals of further deterioration in growth. The services sector, which has in part supported growth is now seeing some weakness, having fallen to 49.6, which is below the ’50-mark’, an important threshold separating expansion from contraction. Manufacturing remains in the contractionary territory at 48.6. Global growth will continue to be challenged by the softening service sector in addition to the lagged effects of tighter monetary policy more generally.
Inflation: Inflation pressures have moderated in the past few months, particularly in the G10 economies. However, a discernible downtrend in US wage inflation, which is a key structural driver of US core inflation, is needed for core inflation to start meaningfully following downward, and for policymakers to be comfortable in achieving their price stability objective. Overall, our view is that the trend, momentum, and direction of travel for inflation are likely headed lower, although it is uncertain how quickly the pace of disinflation will occur.
Monetary Policy: The Fed recently held its policy rate steady in the 5.25%-5.50% range, deliberating between whether the US economy can remain resilient and continues to surprise to the upside, or if financial conditions are already tight. The MAPS Team believes that the cumulative effects of the Fed’s rate hikes are still working their way through the economy (albeit gradually) and will eventually slow down the labor market further, driving the Fed to steady its rate hikes.
Please download report for asset class views and a discussion on key risks.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).
