zerohedge.com / by Tyler Durden / Nov 2, 2016 12:31 PM
October was a month most investors will wish to quickly forget. As DB’s Jim Reid writes, for the most part October will likely be remembered as the month where ‘Hard Brexit’ concerns well and truly jumped into the spotlight and Sterling related assets suffered as a result. Politics was a fairly consistent theme during the month however with the US Presidential Election campaign also attracting plenty of attention. Earnings season has provided another distraction for markets while we’ve also had the usual focus on central banks including a number of speculative ECB stories. Add to that the ongoing OPEC related news and it’s certainly made for a busy October.
As DB adds, it was sterling assets which really stand out. Unsurprisingly the negative news flow had a big impact on the currency with Sterling dropping -6% during the month from around $1.30 to the low $1.20’s. Negative sentiment also hurt Gilts which in local currency terms dropped -4% however in USD hedged terms plummeted -10% and the most amongst the assets in the asset sample. It was a similar story for UK equities which were up 1% in local terms but -5% in USD terms. Given the moves for Gilts, Sterling credit also had a poor total return month despite the BoE purchasing scheme impressing with the initial pace of purchases in October. Indeed GBP corps, non-fins and fins were -8% to -9% in USD total return terms (and -2-4% in local currency terms) although GBP HY (0% local and -6% USD terms) did outperform.
It wasn’t just Gilts which suffered in bond markets however. With markets also reassessing inflation expectations, in USD terms BTP’s (-5%), EU Sovereigns (-4%), Bunds (-4%) and Spanish Bonds (-4%) all suffered. BTPs being also hit as the polls leaned slightly towards a rejection of the senate reform referendum in early December. Treasuries (-1%) outperformed but were still weaker during the month. Those moves had another obvious knock on in credit markets too although performance was reasonably resilient despite the rates selloff. US credit outperformed with indices finishing flat to -1% during the month while European indices were broadly -1% to -3% with ECB purchases still evidently having a positive impact and helping out-perform rates. Interestingly EUR higher beta HY and sub-fins outperformed more.
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