The main theme driving financial markets in September – market participants pricing in a ‘higher for longer’ interest rate outlook in the US – continued into October. This reflected the ongoing resilience of the US economy – stronger employment data and economic activity, coupled with higher core inflation all contributed to the continued sell-off in US Treasuries. Yields on 5, 10 and 30-year US government bonds all rose significantly, with 10-year bonds exceeding 5% for the first time since 2007, before ending the month at 4.93%. In Europe, economic data was much softer than in the US, as was CPI inflation, which helped European sovereign yields to remain steady over the month.
Global financial markets were also negatively impacted by the conflict between Israel and Hamas. Volatility in oil markets saw the price of Brent crude end the month down 8.3% after an initial sharp rise of 7.5% when the conflict started.
Elsewhere in emerging markets (EMs), core inflation continues to be relatively low in Asia, while exports in North Asia (Taiwan, Korea and Singapore) had a strong month, led by the tech sector. In China, economic data was generally better than expected, including a higher-than-consensus GDP print, but consumer sentiment and property data remained muted. In Latin America, the Chilean central bank cut rates by 50bps instead of the 75bps expected, while in Costa Rica, S&P ratings upgraded the country’s credit rating to BB- from B+.
Turning to EM fixed income indices, the local bond index (JP Morgan GBI-EM GD unhedged) fell 0.5%, with most of this coming from EMFX, given the US dollar’s strength over the month; hedged bonds were broadly flat. In the hard currency space, sovereign bonds fell 1.4% (JP Morgan EMBI BD), while EM corporates fell 1.2% (JP Morgan CEMBI BD).