Risks reduced but not removed

Key developments

Global equities outperformed bonds in October as trade risks abated, US earnings impressed and central bank easing supported sentiment. At the time of writing, 78% of S&P 500 companies had beaten Q3 earnings expectations and no sector had less than 58% of companies beating analyst earnings estimates.

The MSCI All Country World Equity Index (local currency) increased 1.8% while the Bloomberg Barclays Global Aggregate Bond Index (hedged into NZD) lost 0.2%.

International risks have not been removed, however, and global economic data generally deteriorated through October. Global data surprises were mostly negative, major economy manufacturing surveys remain consistent with contraction and service sector activity indicators suggest a slowing in growth.

Despite improving economic outlooks, New Zealand and Australian equities underperformed their global counterparts with the S&P/NZX 50 dropping 1.3% and the ASX 200 falling 0.4% in October. New Zealand market performance was dominated by weakness in electricity stocks after Rio Tinto announced it was reviewing operation of its Tiwai Point aluminium smelter.