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Politics dominate in October

Politics grabbed the spotlight during October, and global investor sentiment was affected by mounting political crisis in Spain, General Elections in Japan and Austria, and continuing developments – and controversy – in the Brexit process. Several key indices – including the Dow Jones Industrial Average Index, the Nasdaq Index, and the FTSE 100 Index, reached new highs during the month.

  • The UK’s rate of inflation rose to its highest level in over five years
  • Spain’s Government took control in Catalonia
  • The ECB extended its asset-purchase programme, but halved its monthly purchase amount

"The Federal Reserve appears to be preparing for another increase in interest rates “later this year"

Politics grabbed the spotlight during October. Global investor sentiment was affected by mounting political crisis in Spain, General Elections in Japan and Austria, and continuing developments – and controversy – in the Brexit process.

In the UK, the FTSE 100 Index hit a new high during October, although this was driven more by optimism about the global economy than by domestic fundamentals. However, share prices subsided on worries that Brexit discussions were showing insufficient progress. Consumer price inflation rose to its highest level in more than five years during September; meanwhile, economic growth in the UK strengthened during the third quarter, fuelling expectations of an increase in interest rates. Over the month as a whole, the FTSE 100 Index rose by 1.6%.

Political crisis deepened in Spain as the Government moved to take control in Catalonia following the region’s controversial declaration of independence. During the month, European Council President Donald Tusk tweeted: “For (the) EU nothing changes. Spain remains our only interlocutor”. Elsewhere, the European Central Bank confirmed that it would extend its programme of asset purchases until at least September 2018, although it will cut its monthly purchase rate from €60 billion to €30 billion. The Dax Index rose by 3.1% in October, while the CAC 40 Index climbed by 3.3%. Although domestic political turmoil created some short-term volatility, Spain’s benchmark Ibex 35 Composite Index ended October 1.4% higher.

In the US, the Federal Reserve appears to be preparing for another increase in interest rates “later this year”, despite persistent question-marks over the country’s stubbornly below-target rate of inflation. The US economy grew at a better-than-expected annualised rate of 3% during the third quarter, in spite of the negative impact of several damaging hurricanes. The Dow Jones Industrial Average Index rose by 4.3% over October and breached 23,000 points for the first time during the month.

Japan’s benchmark Nikkei 225 Index rose steadily over October, boosted by a strengthening domestic economy. Share prices were driven up by the clear victory of Japan’s incumbent Prime Minister, Shinzo Abe in a snap General Election. His win provided the ruling Liberal Democratic Party (LDP) coalition with a fresh mandate to address “national crises” that include a recent intensification of pressure from North Korea. During October as a whole, the Nikkei 225 Index reached levels not seen since 1996, and ended the month 8.1% higher.

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