The FTSE 100 index of leading UK company shares finished October at 6,546.17, falling 76.55 points or 1.16% during the month.
Global equity markets finished the month on a more positive note, with news of further monetary policy easing from the Bank of Japan.
This announcement in Japan was combined with expectations interest rates will remain low in the UK, US and across Europe, resulting in investors likely to favour equities over cash for the medium term.
Banking stocks were the biggest gainers on the final day of the month, with Barclays rising by more than 8% in a day because new leverage ratio rules were not as strict as some had expected.
The FTSE 100 is now trading on an attractive dividend yield of 5.4%. Earlier in October it fell sharply as a result of weak economic data in Europe and continued geopolitical tensions in various parts of the world. The index is now down by around 3% since the start of the year, but could quickly rebound to challenge its peak of 6,904.86 points reached at the start of September.
The UK is back on track to be the fastest growing economy in the G7, following the publication of new GDP figures for the third quarter. Despite economic growth in the UK slowing down slightly in the third quarter – rising by 0.7% compared to 0.9% in the second quarter – the International Monetary Fund (IMF) expects UK GDP to increase by 3.2% in 2014. They forecast growth of 2.2% in the US this year, which puts it in second place.
Further afield, growth in Chinese manufacturing slowed in October, reinforcing concerns about a wider economic slowdown in the country. According to the Purchasing Managers Index (PMI) in China, activity fell from 51.1 in September to 50.8 in October. A score above 50 still represents expansion, but there is clearly some downward pressure on the economy.
Price inflation in the UK has fallen to its lowest level in five years, with the Consumer Prices Index (CPI) measure of price inflation at 1.2% for the year to September 2014. Inflation was driven lower by falling energy and food prices, according to the Office for National Statistics (ONS).
The Retail Prices Index (RPI) measure of price inflation, which includes mortgage interest and other housing costs, fell from 2.4% in the twelve months to August, to 2.3% for the year to September.
In the Eurozone, which has been facing the prospect of deflation, price inflation rose slightly in October. The latest ‘flash inflation’ figure showed price inflation in the Eurozone of 0.4% in October, up very slightly from 0.3% in September, according to the agency Eurostat.
The European Central Bank (ECB) also has an inflation target of 2%, similar to the UK. They have cut their benchmark interest rate to 0.05% and started an asset purchase programme in an attempt to stave off deflation.
Interest rates in the UK remain on hold at 0.5%, with no real prospect of a rate rise in the short term. Despite the UK economy showing some signs of a sustained recovery, monetary policy remains quite loose and markets have recently assumed the UK is the advanced economy where interest rates might rise the soonest.
We continue to believe that rates will remain low until the middle of next year at the earliest, and any subsequent rise is likely to be modest.
UK house price growth continues to slow, according to the latest figures from Nationwide. Prices rose 0.5% in October, following a fall of 0.1% the previous month. This brings the average house price to £189,333. Annual house price inflation fell to 9% in October from 9.4% in September.
Nationwide believes these recent figures indicate the housing market has lost momentum over the summer. According to the Building Society, “Some forward-looking indicators, such as new buyer inquiries, suggest that activity may soften further in the near term, especially in London.”
The yield on a benchmark 10 year gilt stood at 2.25% at the start of November, falling from 2.43% a month earlier.
Brent Crude Oil Futures are currently $85.83 a barrel, falling sharply during October on lower global demand. The Forex Gold Index is $1,164.25/ounce and the Silver Index is $16.20/ounce.
£1 will buy $1.6000 or €1.28070.
