Chart Of The Week   November 01 2022

October 2022 In Review

october in review

Most of the global financial assets we track rebounded in October, following a period of poor performance in the prior two months.

DM bourses led global stocks higher. In particular, US equities benefitted from oversold conditions and registered the largest abnormal gains. BCA Research strategists disagree about the sustainability of this rally. While our US Equity strategists view it as a bear market rally, our US Investment strategists and Global Investment team are more optimistic and expect stocks to rise into mid-2023.

The performance of EM stocks was bifurcated. While ex-China emerging market advanced, Chinese stocks posted the lowest z-scores among the assets we track. Our China Investment strategists maintain a cautious stance on Chinese stocks as the 20th Party Congress did not result in a significant shift away from Beijing’s current macro and regulatory policies.

Meanwhile, global sovereign bonds posted a small gain in October. As our US bond strategists recently highlighted, the global tightening cycle is at an inflection point. Bond yields are falling as investors price in a slowdown in the pace of rate hikes, reflecting a dovish shift in central bank rhetoric. Although they maintain below-benchmark duration in bond portfolios, BCA’s Global Investment strategists recently upgraded their recommended duration stance from underweight to neutral over a 12-month-and-longer horizon and to overweight over a 6-month horizon.

Although the US dollar appreciated on a trade-weighted basis, EUR/USD also experienced a monthly gain. Going forward, a material deterioration in US growth and Fed expectations is required to sustain the euro’s appreciation. Our FX strategists recommend investors stay neutral the dollar over the near term, but are bearish over a cyclical investment horizon.

In the commodity complex, oil remains in a tug of war between the deteriorating economic backdrop and supply side risks, with the latter dominating in October. Our commodity strategists continue to view oil price risks as skewed to the upside. Meanwhile, weak Chinese economic conditions continued to weigh on industrial metals.