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Strong October start fades into a sell-off

Published November 2020

The strong start in U.S. and European equity markets in October faded into a late sell-off by the end of the month.

Investor fear around the rising COVID-19 cases in Europe and uncertainty with the 2020 United States presidential election caused market volatility that saw the S&P 500 finish down 2.7%, UK equities fall 3.8%, while European markets, ex-UK, were worst hit tumbling 5.8%.

In aggregate global shares finished -3.2% and -1.1% lower in hedged and unhedged terms respectively. The Australian dollar depreciated and fell almost 2% against the US dollar.

However, Australian shares outperformed their global counterparts. The Financials sector, led by the banks pushed the local market higher by 1.9% for the month.

Defensive assets were broadly flat during the month as the Australian fixed income (+0.3%) sector secured small gains.

Globally, US 10-year Treasury yields rose by 18 basis points, while virus concerns across Europe pushed 10-year German Bond yields lower.

Global economic picture

Global economic data continued to be mixed. Though the US reported better than expected services and manufacturing Purchasing Manager’s Index (PMI) data for October, the figures were lower compared to September.

On the other hand, China continued to show signs of economic recovery, with Q3 GDP rising 4.9% year-on-year, exhibiting strong resilience. Chinese shares climbed by 2.1% in October.

In terms of COVID-19 data, the World Health Organisation (WHO) reported cases surpassed 40 million globally and deaths continued to climb, finishing October with more than 1.1 million since the virus first struck.

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