After a weak start October proved a better month for financial markets. Bonds and equities rallied, with REIT’s performing particularly well. Commodity prices declined further and the $A was little changed in the month. A generally positive earnings season in the US combined with supportive statements from major central banks contributed to the better month for equities.
Economic statistics in Australia showed some further softening in the labour market and potential signs of a peak in construction activity. Combined with lower inflation and a still firm $A it was no surprise that the Board of the Reserve Bank decided to leave the cash rate unchanged at 2.5% at its meeting on 4 November. Senior officials from the Reserve Bank expressed concerns about house price inflation and the risks of renewed volatility in financial markets.
The latest data from the US shows further improvements in the labour market and renewed strength in manufacturing activity. The housing market and consumer sentiment also showed favourable readings. Mid-2015 still looks like the most likely time for the Fed to start lifting interest rates.
Europe and Japan however reported further economic weakness. In Japan, the Bank of Japan responded with a surprise announcement of further asset purchases.
In China, third-quarter GDP growth came in at 7.3% over the year which was slightly more than the consensus expectation of 7.2%.