T3 Monthly Insights - Oct 2024

U.S. equity indices exhibited notable resilience in October, hitting fresh highs despite heightened volatility driven by pre-election jitters. Profit-taking toward month-end tempered gains, with the S&P 500 surpassing 5,800 before retracing to close at 5,705.45 (-0.99% m/m) while the NASDAQ peaked at 18,700 before settling at 18,095.15 (-0.52% m/m). Bond yields surged during the month, revisiting July levels as investors recalibrated inflation expectations. This spike in yields bolstered the U.S. dollar, with the DXY index advancing 3.17% in October, closing at 103.976.

Core inflation inched higher, rising 0.3% m/m and 3.3% y/y, up from 3.2% in the previous month. This reinforces expectations for a cautious Federal Reserve, with markets pricing in 25bps rate cuts in both November and December. The labor market remains robust, as September nonfarm payrolls added 254,000 jobs, far exceeding forecasts of 140,000, and the unemployment rate dipped to 4.1%. GDP growth for Q3 advanced at an annualized rate of 2.8%, slightly below Q2’s 3.0% but indicative of steady economic momentum.

In the Eurozone, inflation fell sharply to 1.7% in September, dropping below the European Central Bank’s (ECB) 2% target. In response, the ECB delivered a second consecutive 25bps rate cut, lowering its benchmark rate to 3.25% as policymakers sought to bolster the region’s sluggish growth. The euro weakened against the U.S. dollar, falling 2.25% to revisit August’s lows and closing the month at 1.0884. Similarly, the UK saw September's inflation dip to a three-year low of 1.7%, down from 2.2% in August and below the Bank of England’s (BoE) 2% target. This unexpected decline heightened expectations for a rate cut at the BoE’s November meeting, following its decision to pause in September. Sterling reversed sharply from its September highs, depreciating 3.56% m/m to close October at 1.2899, weighed down by dollar strength and dovish monetary expectations

Commodity-linked currencies saw sharp declines in October after touching yearly highs in September. The Aussie fell 4.79% to 0.6582, while the Kiwi dropped 5.86% to 0.5977, retreating to levels last seen in July. In Australia, inflation cooled significantly, with quarterly CPI rising only 0.2% and annual inflation easing to 2.8%, the lowest since early 2021. The Reserve Bank of Australia is expected to hold rates steady until 2025 as it seeks to balance inflation control with employment stability. In New Zealand, Q3 annual inflation fell to 2.2%, returning to the central bank's 1%-3% target range for the first time since 2021. The Reserve Bank of New Zealand cut its official cash rate by 50bps to 4.75% in October, its second consecutive reduction, and markets are anticipating another significant cut in November.

Gold extended its record-breaking rally, briefly surpassing $2,800 in the last week of the month, fueled by pre-election uncertainty and geopolitical risks. Bitcoin also surged, gaining over 10% to exceed $73,000, revisiting its March record highs. This crypto rally is fueled by market optimism around a potential Trump victory in the U.S. election, seen as favorable for digital assets.