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October’s global sell-off

October 2018

October proved a torrid month for investors as equity markets fell heavily. The global sell-off was attributed to a range of factors, including concerns over Italy’s budget, wider worries about Brexit, disappointing corporate profit announcements, and concerns over the consequences of ongoing global trade tensions and the global impact of tightening US monetary policy.

  • The EC rejected Italy’s draft Budget proposals
  • Economic growth slowed in China
  • President Trump criticised the Fed

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October proved a torrid month for investors as equity markets fell heavily. The global sell-off was attributed to a range of factors, including concerns over Italy’s budget, wider worries about Brexit, disappointing corporate profit announcements, and concerns over the consequences of ongoing global trade tensions and the global impact of tightening US monetary policy. The International Monetary Fund (IMF) cut its forecast for global economic growth from 3.9% to 3.7% in 2018 and in 2019, and also trimmed its growth predictions for key economies including the US, Germany, France and China.

 “With less than five months until the Brexit deadline, the UK and EU remained divided”

Relatively robust economic data fuelled expectations that the US Federal Reserve (Fed) will implement another increase in the federal funds rate in December. During the month, however, President Trump caused controversy by criticising Fed policy, commenting that the central bank was “out of control”. Sentiment was further dampened by downbeat third-quarter earnings announcements from prominent US companies including Amazon, Google parent company Alphabet, Caterpillar and 3M. The Dow Jones Industrial Average Index fell by 5.1% over October. 

With less than five months until the Brexit deadline, the UK and EU remained divided as discussions stalled over the issue of the Irish border. The EU expressed itself willing to consider extending the post-Brexit transition period if necessary. Meanwhile, Chancellor of the Exchequer Philip Hammond unveiled a Budget that hailed the end of the “era of austerity”. Focusing on raising Government spending and an improved economic outlook, the Chancellor brought forward income-tax breaks, introduced a new Digital Services Tax and cut business rates. The FTSE 100 Index fell by 5.1% during October. 

Sentiment in Europe was further dampened by Italy’s ongoing fiscal woes: having unveiled a controversial draft budget in September, Italy’s leaders were ordered by the European Commission (EC) to submit a revised budget. The eurozone’s economy grew at an annualised rate of only 1.7% during the third quarter, compared with 2.2% in the second quarter. The FTSE MIB Index fell by 8% during October, while Germany’s Dax Index declined by 7.8%.

Asian markets fell heavily during October; in China, the benchmark Shanghai Composite Index fell by 7.7% amid signs of an economic slowdown. Elsewhere, confidence amongst large Japanese manufacturers fell for a third consecutive quarter, according to the Bank of Japan’s (BoJ’s) quarterly Tankan survey. The Nikkei 225 Index dropped by 10.1% over the month.


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