October Review
The US government shutdown dominated headlines, leaving markets in a data vacuum with no fresh economic indicators to react to. A delayed CPI print showed core inflation at 3%, slightly below expectations. The absence of Non-Farms Payrolls data left ADP’s weekly jobs report as the key employment indicator, revealing 56,000 private sector jobs added, easing unemployment concerns. Meanwhile, as expected, the US Federal Reserve implemented a 25bps cut and concluded Quantitative Tightening. Trump’s threat of 100% tariffs on China initially rattled markets, but a 12-month trade truce with Xi Jinping calmed tensions. In Europe, French PM Lecornu’s resignation and subsequent return, along with the scrapping of President Macron’s controversial pension reforms, are expected to facilitate a budget agreement and potentially stabilise French credit spreads. Japan’s surprise LDP leadership election winner, Takaichi, caused JGB and Yen weakness due to her stance on looser fiscal and monetary policy, seemingly contradictory to her inflation reduction goals.
Looking to EM, credit markets rose +0.43% in corporates and +2.13% in sovereigns, with spreads 5bps wider for corporates and 21bps tighter for sovereigns. Within corporates, the real estate, utilities and diversified sectors outperformed, while industrials were the main laggards. In sovereigns, Latin America was the top-performing region. Local markets also saw positive returns, with the index up by +0.46% for the month. This was primarily driven by strong performance in rates, which returned +0.78%, while FX underperformed with a return of -0.33%. At the country level, Peru, Chile, Indonesia, and South Africa contributed to the positive strength. However, European currencies diverged from the general trend, weakening slightly against the USD during the month.
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