Market Performance Review for October

October saw a sharp decline in risk sentiment across financial markets from the post-Covid highs of late summer, as case counts are rising to new highs across Europe and the US. Market performance remains inextricably correlated to the evolution of the virus, as it dictates the actions of governments worldwide. European equities and oil in particular were among the worst performers last month, while emerging market assets, particularly in Asia, were among the best.

With partial national shutdowns announced in the two largest European economies and further restrictions across the continent in the face of quickly rising Covid-19 cases, indices such as the German DAX fell 9.4 percent, the Greek Athex fell 8.8 percent and Italian FTSE-MIB was down 5.6 percent, all recording their worst months since March.

The negative sentiment was partly shared on the other side of the Atlantic, with cases there reaching record highs as well, as the S&P 500 was down 2.7 percent and the Nasdaq fell 2.3 percent for a second straight month.

It was not all bad news as Asian markets partly rallied, with the Hang Seng gaining 2.8 percent last month. In addition to the reported virus cases remaining largely in control, economic indicators are beating expectations and are well into growth territory.

Furthermore, in the annual plenum of the Communist party, Chinese policymakers were optimistic about its potential growth, with a five-year plan aiming for an estimated annual GDP growth of 5.5 percent. Crucially, the policymakers indicated that their strategy going forward is to foster home grown innovative high technology and achieve self-reliance in the tech sector.

WTI oil was the worst performing instrument, down 11 percent with Brent crude not far behind, down 8.5 percent, as global demand worries on the back of further government shutdowns hurt energy prices. Both measures of oil are now at their lowest levels since late May.

Not all commodities were lower in October however, as some metals saw a modest rise over the last month. Silver rose 1.8 percent and copper gained 0.5 percent, while gold surprisingly declined 0.4 percent over the month.

Sovereign bonds rallied in Europe with the risk off tone and indications that the ECB would continue and possibly expand on its bond-buying programme. Italian BTPs led the way, up 1.3 percent for a second straight month, aided by an upgraded outlook by S&P based on expected financial support. Spanish debt was up 1.0 percent, while bunds similarly advanced 0.9 percent. US Treasuries, on the other hand fell 1.0 percent.

In terms of FX movements, the big move was in Asian currencies as the Chinese Renminbi strengthened 1.5 percent against the US dollar, while the Japanese Yen rose 0.8 percent. The Euro fell 0.6 percent, while the Emerging Market FX index dropped 0.3 percent as the dollar index rose 0.2 percent in its smallest monthly move since April.

Finally, on the local front the MSE Equity Total Return Index continued its decline, down 2 percent throughout the month. The index, which is arguably heavily weighted towards industries that are highly exposed to pandemic related concerns, remains underperforming other European indices.