All eyes were on the US for the first half of October as the failure of congress to agree a budget led to a government shutdown, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
In retrospect, disruption was controlled. The quantifiable short term impact is estimated (by S&P Economics) to be USD 24bn and a 0.6 per cent reduction in Q4 GDP. The longer term cost is expected to be measured in increased uncertainty in investment by companies and greater nervousness among consumers – which may well result in reduced spending.
Markets reacted well during the closure, and actually increased slightly (up 3.78 per cent). After the ‘fix’ – which was merely a temporary solution until January – the ‘relief’ rally came. Turning to the Fed, next January’s change in management combined with uncertain economic data suggest that policy will remain unchanged until the New Year.
Developed markets added 3.68 per cent, with Japan the sole decliner at -0.04 per cent. Greece added 15.43 per cent to lead all markets year-to-date with a 40.72 per cent gain – although their 3-year return is still deeply in the red, off 35.87 per cent. Italy was the other double-digit winner, adding 11.74 per cent, as Spain gained 9.00 per cent. The year-to-date gains for developed markets are impressive at 20.19 per cent, with the ex US gain standing at 15.99 per cent (the US is up 24.29 per cent).
Emerging markets added 4.69 per cent, with Colombia the sole decliner (off 0.24 per cent) India did the best, rebounding 11.07 per cent but still off 7.33 per cent year-to-date. Egypt added 9.50 per cent for the month, as it broke into positive year-to-date territory. October gains helped emerging markets reduce their year-to-date decline to 1.19 per cent, though half the markets remain in the red year-to-date.