Market Commentary Posted on

October 2016 Market Commentary – Who’s Afraid of a Little Inflation?

Data Source: Bloomberg


  • Developed markets were moderately down in October partly in response to rising rate anxieties prompted by perceived shifts in global central bank policy and rising inflation expectations. 
  • Emerging markets continued to extend their leadership over developed as the region largely shook off rate anxieties and a stronger U.S. dollar.
  • Uncertainty around ongoing support for global quantitative easing has led to a pullback in interest-sensitive assets such as precious metals, REITs, utilities/telecom, and fixed income debt.  Bucking the trend in the bond market sell-off is high yield as investor appetite for credit risk remains strong despite rising interest rates. 
  • Following a rally at the end of the 3rd quarter, U.S. and European bonds renewed their sell-offs with the 10-year U.S. Treasury yield rising to 1.83% and the German 10-Year Bund yield rising to 0.17%.  The Dollar Index Spot (DXY) rose to a YTD high of 98.45 with most of the gains realized in October.   
  • From a sector standpoint, there were few places to hide as only the financial sector (benefiting from the steeper yield curve) posted a meaningful positive return for the month. 
  • Could improvements in emerging markets export a whiff of inflation as the developed markets continue to find sustainable growth traction? Some strategists are now bringing up the dreaded stagflation scenario where rising costs depress future business activity. 

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By: Benjamin Lavine