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Monthly market update: October 2017

It wasn’t the Bank of England’s first interest rate rise in a decade that stole the show, it was the cautious rhetoric that it came packaged in.

The Monetary Policy Committee bumped interest rates up 25 basis points to 0.5%, undoing the cut governor Mark Carney made after the 2016 Brexit referendum.

Essentially, Mark Carney doesn’t reckon the UK economy is strong enough to withstand a major shift in monetary policy. This cautious sentiment caused sterling, a barometer of economic confidence, to sell off sharply in the immediate aftermath.

With economies enrolled on loose monetary policy since the global financial crisis, global central banks have wanted to return to normal monetary policy for some time – especially with inflation reaching 3% in the UK in September.

But Mark Carney has had a juggling act on his hands, as the economy isn’t as strong as he might have liked it to be before he started tightening stimulus. Although economic growth beat expectations in the third quarter, it’s still lagging behind other developed economies, wages are stagnant and productivity low.

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Elsewhere in the UK, Brexit negotiations are treading water with no clarity on what a final outcome will look like – or if there will even be a final outcome. Eyes are now looking to the November Budget.

A decent set of third quarter earnings have started to come in, although the market reaction has been relatively muted. Strong earnings have helped support high equity valuations this year, but analysts will now be wondering whether the good news is more than priced in.   

Moneyfarm portfolio performance

During October, all of our model portfolios delivered positive returns, ranging between 0.2% and 3%.

The globally diversified Moneyfarm portfolios benefitted from a decent month in global equities, specifically from the US and Japan. UK bonds also performed well in October, although the stronger dollar weighed on emerging market bonds.

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