“Fed pivot” has been trending on Twitter and was the main market theme through October. The Fed’s whisperer at the Wall Street Journal set the cat amongst the pigeon signalling a potential slowdown in the central bank’s tightening path. A cacophony of other central banks, from the RBA to the Bank of Canada and the ECB raised interest rates but hinted that they were coming nearer towards the peak in their hiking cycles. We shall see if this new favourite market phrase is for real in 36 hours or so with the November FOMC meeting on tap.

Certainly, recent data has been softening and a few more Fed speakers have been calling on the need to step down the pace of rate increase. But core inflation remains elevated, and the labour market is still tight. Price pressures in particular need to ease on a sustained basis with the Fed’s inflation target a long way off at 2%.

In this environment, the dollar has printed a relatively wide “doji” candlestick denoting some uncertainty. Wall Street stock indices generally enjoyed the month, in part because sentiment was too depressed and fearful towards the end of September. The “old economy” stocks in the Dow boosted it to gains of 14%, its best monthly performance since 1976. The broader S&P 500 benchmark jumped 8% as 3,500 acted as solid support, as a round number and the halfway point of the pandemic rally. The tech-heavy Nasdaq lagged, with modest monthly gains of 3.9% as Big Tech took a battering. Gold struggled too and has now fallen for seven straight months, with $1617 as key support.

Major events of the month, in numbers

*$1 trillion FAANG+: Nearly $1 trillion was wiped off the value of Big Tech, the biggest US tech companies, last week. A slowing global economy and mounting cost pressures have taken a heavy burden on the former indestructible stock market darlings. Microsoft disappointed on its once-titanic cloud division while Amazon’s downbeat forecast extended the pain to the ecommerce sector. Facebook’s parent, Meta, delivered one of the biggest hits to Wall Street’s faith in the resilience of Big Tech when it reported another quarter of declining revenue amid a hammering in its advertising business. Investors are preferring “old economy” stocks that are value-based and performing better due to their stable earnings streams. They are less sensitive to rate increases in contrast to high-growth tech names which base projected profits far into the future.

*$43 billion (USD/JPY): Japan spent a record JPY6.35 trillion to support their currency in October after USD/JPY fell to 32-year lows at 151.94. This comes after the first FX intervention since 1998 saw the Ministry of Finance spend $20 billion in September. The combined intervention total has hit more than double the last phase of yen-buying in 1998. Japan has $1.3 trillion in FX reserves, but unilateral action rarely works over the long term. The stark divergence between Fed and BoJ monetary policy is playing out in the currency major.

*4.33% US 10-year Treasury yield: This widely followed proxy for US borrowing costs hit highs last seen in November 2007. Up until last week, yields had risen for twelve consecutive weeks. This looks like the longest streak in nearly 50 years. Bond prices have found a bid, so yields have dropped back near to 4% as the “Fed pivot” has gained some belief recently. More rate hikes are on the horizon but does the pace slow to give time to policymakers to reassess the tightening of financial conditions?

*20 China: The results of the 20^th Communist Party Congress in Beijing saw a top government official team that is more concentrated than before.  Xi Jinping made a clean sweep placing his men in the top jobs. Markets took a dislike to this repositioning, as it adjusts to potentially less investor-friendly policies. If this plays out over time, an expected backlash from the US could see more sanctions and interference in supply chains and investment ties. “Common prosperity” achieving economic self-sufficiency may be the watchwords in China, which could increase volatility going forward.

*44 days (UK PM Truss’ tenure): Now a mere footnote in history, but one that will live long in the memory, especially for those trading gilts. The UK government bond market has rarely seen such volatility as a “doom loop” engulfed the normally placid market, and other markets too, after the “mini-budget” in late September and well into October. Credibility seems to have been restored, on the fiscal side, with markets awaiting the new fiscal plan on 17 November. GBP will eye up the Bank of England rate hike this week with hopes that the “unreliable boyfriend” doesn’t make an appearance.