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Global stock markets head into October after another bruising month as a sharp sell-off in bond markets hit sentiment. Shares across developed markets plunged as sovereign bond yields surged to multi-year highs, with a fiscal event in the UK acting as a spark in the tinderbox that is fixed income markets. Wall Street made fresh YTD lows as the 10yr Treasury hit 4%, whilst the DAX in Frankfurt hit its lowest level in two years amid plunging consumer confidence, increasingly hawkish central bank rhetoric and persistent energy fears. There was apparent sabotage to the Nord Stream pipelines, whilst Italy’s electorate voted for a right-wing government that could reshape relations with the rest of the European Union. 


Will earnings season provide a lift, or will it prove the last shoe to drop?  So far most of the declines in the Nasdaq (-33% from its peak) and the S&P 500 (-24%) has been down to multiple compression as the Federal Reserve raised rates. Earnings have been holding up pretty well so far but there are signs of cracks appearing. 

A soaring dollar is one way that US earnings could take a nosedive. Morgan Stanley notes: “On a year over year basis, the DXY is now up 21% and still rising. Based on our analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal.” 

And analysts remain, it would look, overly optimistic. Industry analysts predict the S&P 500 will rise by 25.7% over the next twelve months, according to FactSet. 

Fiscal backtracking? 

The UK has been in sharp focus lately and will remain so for the coming weeks. The steep sell-off in gilts and sterling in the wake of the mini-Budget from new Chancellor Kwasi Kwarteng well documented by now. 

But will there be any backtracking, and will the Bank of England be forced to step in? 

In a rare rebuke of domestic fiscal policy, the IMF weighed in. “Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture,” the IMF said in a pointed rebuke to the Chancellor. “It is important that fiscal policy does not work at cross purposes to monetary policy.” 

The chancellor has promised to announce medium-term supply side reforms in November, but market dislocation could force him to act sooner. Meanwhile, the Bank of England still might opt for an inter-meeting rate hike should financial conditions deteriorate further through higher gilt yields and a weaker pound.  

European Central Bank 

The European Central Bank (ECB) is likely to raise interest rates by 75bps when it meets towards the end of October. “We will do what we have to do, which is to continue hiking interest rates in the next several meetings,” ECB president Christine Lagarde said this week. Other policy makers have likewise signalled that the ECB will start juice up the pace of rate hikes as it seeks to combat inflation within the Eurozone. The ECB is due to announce policy on October 27th. 


With crude prices falling to their lowest level since January in September, OPEC+ could ramp up production cuts when it meets at the beginning of the month. At its last meeting members agreed to reduce output by 100k bpd; however declining prices indicate there could be room for further cuts. Sources suggest Russia will push for as much as 1m bpd in curbs when OPEC and allies convene on October 5th. 

Economic calendar 

Key events for your trading diary 

October 5th – OPEC+ meetings 

October 7th – US Nonfarm Payrolls 

October 12th – FOMC minutes 

October 13th – US CPI inflation 

October 19th – UK CPI inflation 

October 27th – ECB policy decision 

October 238th – BoJ policy decision 

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