Market outlook October 2023

October was undoubtedly impacted by the intensification of the armed conflict between Israel and Hamas, leading to an increase in the volatility of the markets and a negative final outcome on the main stock exchanges. As a result, the main American indices and the Eurostoxx 50 fell by around 3%.

One of the most volatile assets during this period was the price of oil, which was affected by the intensification of the armed conflict in the Middle East, factoring in the potential worldwide shortage of crude oil. The price rose from $84.07 per barrel on the days before the conflict to highs of over $92 per barrel. This had an impact on economic growth, due to the increased energy costs and inflationary pressure.

It also led to sharp rises in government bond yields, which acted as a safe haven. In this respect, returns on the 10-year Treasury broke the 5% threshold during the period while the 10-year benchmark German Bund broke the 3% barrier. However, the benchmarks eased towards the end of the month and closed lower. The American benchmark traded at around 4.8% and the German one at 2.77%, while the peripherals also fell, with the Spanish 10-year bond standing at around 3.84% and the Italian one at 4.68%.

As for the Central Banks, the actions of the European Central Bank came as no surprise to the markets and, as expected by the analysts, the ECB announced a first pause after ten consecutive meetings that raised interest rates. However, it indicated that it wasn’t yet considering how long the restrictive rates would remain, as this would depend on the evolution of the macroeconomic data. Meanwhile, in the US, as of late October the Federal Reserve had yet to reach a decision on its rates, although the vast majority of analysts expected them to remain unchanged within the 5.25%-5.5% range.

In terms of macroeconomic data, we should highlight the robust American figures, including the GDP for the third quarter, which recovered sharply and exceeded the analysts’ expectations, with the data for the previous month doubling to stand at 4.9%. In Europe, the advanced data on inflation in the eurozone fell below 3%, thus approaching the ECB’s 2% target.