In October, both stocks and bonds lost value. However, US stocks did better than international stocks and emerging market stocks (which are stocks from developing countries such as China, Brazil, India and South Africa), thanks to a stronger US dollar. Investors continued to prioritise growth risks as their main concern, even with indications of resilience, especially in the US economy. In the third quarter of the year, the US economy grew by 2.8%, meaning businesses are making more money and consumers are eager to spend. Retail sales experienced a boost as shoppers returned to stores and 254,000 new jobs were added in September, which lowered the unemployment rate to 4.1%. Because of this, some investors think the economy might keep growing without any major problems, while others believe it will slow down a bit. Additionally, uncertainty was amplified by the approaching US election and the possible effects of a policy shift on inflation and interest rates.

New Zealand bonds posted negative returns in October. However, the local bond market outperformed its global counterparts, buoyed by a weaker economic outlook and expectations of lower interest rates. The Bloomberg NZ Bond Composite 0+ Year Index recorded a return of -0.5%.

The NZ dollar declined by 6.5% against the US dollar in October, reversing gains from August and September. This decline was driven by strong US economic data, the rising likelihood of a Trump presidency, and narrowing NZ-US interest rate spreads, which affected the NZ dollar against most major currencies. Additionally, the NZ dollar fell against the Australia dollar by 0.9% due to significant NZ-AUS rate spread compression and differing macroeconomic performances.

Developed markets, which include countries with advanced economies like the United States, Canada and many countries in Europe returned -0.9% (in local currency) and 4.8% (in unhedged NZ dollar). In China, investors were more hopeful that recent government actions would help boost the economy. Overall, emerging markets were down, mainly because the US dollar was strong. Japanese equities were the standout performer for the month, returning 2.3%, despite the Bank of Japan signalling that it may hike interest rates in the near future.

Significant developments for October:

• On the 9th of October, the Reserve Bank of New Zealand (RBNZ) reduced its policy rate by 50 basis points. This decision was made because the Consumer Price Index (CPI) fell within the target range of 1-3%. The RBNZ stated that this move is necessary to maintain stable inflation and minimize disruptions to things like output, employment, interest rates, and the value of the NZ dollar.

• Tensions in the Middle East increased during October, specifically in relation to Israel and Hamas. The Israeli military confirmed the death of Hamas leader Yahya Sinwar in combat. Sinwar was believed to be the main person responsible for a terror attack in October 2023 that led to a war in Gaza.

• Uncertainty surrounding the now-decided US election result increased market volatility. Both parties presented differing economic agendas, leading market participants to become increasingly anxious about how these changes could impact monetary policy, consumer spending, and overall economic growth.