European Economic Outlook:
The Eurozone economy grew by a lacklustre 0.3 per cent between the second and third quarters, dashing hopes of a stronger recovery and raising the prospect of more aggressive monetary easing from the European Central Bank. The euro fell 0.5 per cent against the dollar in morning trading amid expectations that the ECB is set to unleash a souped-up quantitative easing programme and possibly rate cuts to boost a recovery that has remained subdued despite low oil prices, a weaker currency and a €1.1tn quantitative easing package.
US Economic Outlook:
The US Federal Reserve is expected to begin its long-awaited tightening cycle in December, drawing capital back to the US and further boosting the dollar at the expense of “soft” currencies.
The dollar is almost universally expected to appreciate when US interest rates start rising, especially because the EU and Japan will continue easing monetary conditions for many months, even years. This fear of a stronger dollar is the real reason for concern in many emerging economies and at the IMF. A significant strengthening of the dollar would indeed cause serious problems for emerging economies where businesses and governments have taken on large dollar-denominated debts and currency devaluation threatens to spin out of control.
UK Economic Outlook:
The UK recovery has been uneven over recent years, driven by robust domestic consumption as opposed to improving export performance. GDP has expanded by 7% since the start of 2013, with only 0.3 percentage-points of this growth driven by net trade. The recent deterioration in emerging market (EM) conditions suggests that these imbalances will remain. The share of UK exports to non-advanced economies, measured in terms of final demand, has increased from 22% in 1995 to 31% at present.
Equities produced their best monthly performance since October 2011, with the MSCI All Country World Index rising +5.7%, when measured in sterling terms. All markets bounced strongly, with the best being Japan (+7.9%) and the US (+6.0%). At the sector level, Energy (+8.7%), Technology (+8.1%) and Materials (+8.1%) led the recovery, while more defensive areas, such as Utilities (+1.6%) and Healthcare (+3.9%) had a quieter month, having held up better in August and September. In terms of style, Large Companies (+5.7%) outpaced Smaller Companies (+3.6%), while Growth (+5.9%) did marginally better than Value (+7.6%).
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