Our Investments team summarises what’s been driving international and local market activity over the previous month.

October's economic landscape: navigating growth and geopolitical tensions

Amidst the unpredictable waves of global economics and politics, the US has emerged as a pillar of strength and adaptability. Despite navigating through the turbulence of the most aggressive interest rate hikes in more than 20 years, the US economy showed remarkable growth, expanding by an impressive 4.9% in the third quarter — the strongest acceleration since 2021. This surge was largely powered by the resilience of American consumers, whose spending accounted for more than half of the growth. However, this robust expansion is tinged with caution; a slight dip in non-residential fixed investment signals that the economy might be bracing for a cooler period ahead.1

Other indicators suggest a more complex scenario. Manufacturing data indicates a contraction in the making, and the Euro area’s GDP experienced a minor pullback. While inflation rates are beginning to retreat, the stability is precarious. Over in Asia, China’s 4.9% growth surpassed forecasts, prompting the government to intensify fiscal support in response to its property market dilemmas. In the bonds market, the US 10-year Treasury’s yield climbed to 4.87%, painting a picture of enduring volatility.2

Turning our gaze to the Middle East, the contrast becomes more pronounced. The long-running conflict between Israel and Hamas persists, with the Gaza Strip the epicentre of relentless tension and strife. The global community continues to seek a path to peace, even as the region grapples with the humanitarian implications of its enduring cycle of violence.3

Australia’s story is one of economic duality — battling the headwinds of inflation but displaying signs of strength. While financial markets have been shaken, prompting the RBA to consider raising interest rates in November, there’s a silver lining. With an expected GDP growth rate of 1.25% for 2024, a thriving housing market, and persistently low unemployment rates, Australia’s economy remains resilient.4,5 The housing sector, in particular, shines as a robust sector, with national home values edging up by 0.9% in October. The housing market in Perth (+1.6%), Brisbane (+1.4%), Adelaide (+1.3%), Sydney (+0.8%), and Melbourne (+0.5%) contributed to this uptick. Australia’s housing scene defies broader trends due to high demand and limited listings.6

The global financial narrative is also mixed. Stock markets, while still facing declines, are showing signs of stabilising. The S&P 500 experienced a moderate 2.1% decrease, compared to the previous month’s 4.8% fall. The MSCI ACWI, which represents a broad spectrum of global equities, fell by 4.3%, and the Euro Stoxx 50 and the UK’s FTSE 100 index declined by 2.6% and 3.7% respectively.

Overall, the global economy is facing a mixed bag of challenges and opportunities. While there are reasons for concern, there are also reasons for hope. The key will be for policymakers to strike the right balance between addressing inflation and supporting growth.

1 C. Smith, 27 10 2023. [Online]. Available: https://www.ft.com/content/d3355ec1-c05c-40ae-8b29-e85e1760333a. (paywall)
2 See above.
3 L. Sands, “Why are Israel and Hamas at war? A basic explainer.,” The Washington Post, 30 10 2023. [Online]. Available: https://www.washingtonpost.com/world/2023/10/17/israel-hamas-war-reason-explained-gaza/
4 S. Qiu, “Australia's surprisingly strong Q3 inflation raises odds of Nov rate hike,” Reuters, 25 10 2023. [Online]. Available: https://www.reuters.com/markets/australia-inflation-surprisingly-strong-q3-adds-rate-risk-2023-10-25/#:~:text=SYDNEY%2C%20Oct%2025%20%28Reuters%29%20,that%20added%20greatly%20to%20the.
5 “Australia: Staff Concluding Statement of the 2023 Article IV Mission,” International Monetary Fund, 31 10 2023. [Online]. Available: https://www.imf.org/en/News/Articles/2023/10/31/cs103123-australia-staff-concluding-statement-of-the-2023-article-iv.
6 R. Pupazzoni, “National home prices rise to be just half a per cent off last year's historic high,” ABC News, 1 11 2023. [Online]. Available: https://www.abc.net.au/news/2023-11-01/october-home-values/103043124.

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