October got off to a tough start as a US manufacturing survey came in at its weakest level since 2009, rattling markets, which settled a few days later when US employment data showed payroll gains that were strong enough to demonstrate decent economic growth, but weak enough not to rule out another US rate cut at month-end. The US Federal Reserve (Fed) delivered the much-anticipated rate cut (its third consecutive cut), while suggesting that rates now felt appropriate for a US economy which should continue growing at a moderate pace. Markets were also buoyed as US-Sino trade talks delivered a partial trade truce between the two global superpowers. Mario Draghi’s last European Central Bank (ECB) meeting as chairman was uneventful. Draghi now hands over to Christine Lagarde as the ECB starts an indefinite programme of quantitative easing (QE) in November with EUR20bn in monthly bond purchases. Easy monetary policy and a weaker US dollar helped emerging market (EM) equities (+4.2% MoM) outperform developed markets (DMs; +2.5% MoM) for the first time since January.
Over 70% of US corporates reported third-quarter earnings during October with aggregate earnings roughly flat YoY, although still 4% ahead of muted expectations. Materials and energy companies were the largest drag on earnings. The oil price has weighed on energy companies with the average price of Brent crude oil for 3Q19 down 18% relative to 3Q18. Previously out-of-favour healthcare stocks were amongst the best performers for the month, up over 5% as these counters delivered mostly solid results. Apple, up 11% MoM into its 30 October results, held onto gains despite disappointing revenue growth as earnings beat expectations. Twitter was less fortunate, down 27% for the month as its results came in well below expectations and the company guided to a weak outlook.
The British pound gained 5% against the US dollar in October as the prospect of the UK crashing out of the EU without a deal became improbable. The outcome is still far from certain as British PM, Boris Johnson, was forced to ask the EU to extend the deadline for negotiating a deal. The EU granted an extension until the end of January 2020 as Johnson’s attempts to rush his deal through Parliament failed and he chose instead to gamble on achieving an outright majority in Parliament via a UK general election scheduled for 12 December.