Sterling and US politics take centre stage in October

Global Briefing

Sterling endured a torrid October against a backdrop of ongoing uncertainties surrounding the UK’s Brexit plans. The pound fell against the US dollar to reach its lowest level for over 30 years during the month, and against the euro to reach its lowest level since 2011. During October, Prime Minister Theresa May confirmed that she intends to begin the process of quitting the European Union by the end of March 2017.

The FTSE 100 Index fell by 0.8% over October as a whole, but reached a new intra-day high during the month. Meanwhile, October brought signs that inflationary pressures might be starting to return to the UK: the annualised rate of consumer price inflation surged from 0.6% in August to 1.0% in September, registering its highest rate for almost two years.

Speculation over US monetary policy took a back seat during October as attention focused on the imminent – and increasingly controversial – US Presidential election. Nevertheless, the decision by Federal Reserve (Fed) policymakers to leave interest rates unchanged at their September meeting proved to be a “close call”, according to the meeting’s minutes. Looking ahead, the Fed is widely expected to implement a rate increase before the end of the year – probably at its December meeting. Economic growth gathered pace in the US during the third quarter: the country’s economy expanded at an annualised rate of 2.9% during the period, compared with growth of 1.4% in the second quarter. Over October, the Dow Jones Industrial Average Index fell by 0.9%.

US monetary policy took a back seat during October as attention focused on the imminent – and increasingly controversial – US Presidential election

The eurozone’s economic growth appeared resilient in the immediate aftermath of the UK’s Brexit vote. During the third quarter, the euro area’s economy expanded at an annualised rate of 1.6%, having also grown by 1.6% in the second quarter. Meanwhile, European Central Bank (ECB) policymakers left interest rates unchanged at their October meeting. The Dax Index rose by 1.5% during October, while the CAC 40 Index climbed by 1.4%.

The yen weakened during October, providing a boost for Japan’s equity markets; the benchmark Nikkei 225 Index rose by 6.1% over the month. Elsewhere, investors drew encouragement from the news that sentiment amongst Japan’s large companies had remained generally steady during the third quarter, according to the quarterly Tankan survey of business sentiment. Sentiment amongst large manufacturers remained resilient during the period; in comparison, sentiment within the services sector continued to soften.