How the different asset classes have fared:
(As at 31 October 2021)
International share markets (unhedged) rose 1.65% in October. Fully hedged international shares rose 5.41% on the month signaling a strengthening AUD across the month. Within the United States, the S&P 500 continues to make new all-time highs as markets in general have largely shrugged off the fears of inflation.
The S&P/ASX All Ordinaries Index rose by 0.15% in October, rising not nearly as much as other markets such as the US. Australian equities traded largely sidewards since August 2021. This has been primarily driven by major materials companies getting impacted by the sharp fall in the iron ore spot price. Materials companies make up a significant percentage of the wider index. This is combined with various economic indicators such a rise in unemployment and a fall in consumer confidence which can be attributed to a slight rise in inflation expectations.
Domestic and International Fixed Income
Australian bonds had a significant fall in the final week of October (-3.55%). This was driven by an indication of policy change by the RBA as they stopped purchasing short-dated bonds which was part of their yield-curve control policy. Short-term yields rose sharply causing the Australian Bond Index to sell off. Sooner than expected rate rises could be what the RBA is attempting to set the stage for.
International bonds fell -0.26% as long dated government yields rose slightly. Inflation is now sitting at a 30 year high in the United States and looks to be moving upwards in many countries around the world. This is having an impact on bond yields and may cause central banks to start thinking about rising rates at a faster pace than previously anticipated.
The Australian dollar rose significantly in the month of October as it continues to move in a choppy trading pattern. Multiple factors such as rising inflation, central bank policy expectations, economic impacts of a slowing China and internal economic dynamics are all trying to be priced into the Australian Dollar causing a lack of clear trading direction at this point in time.