Nov 6, 2025
Markets ended October in buoyant form, supported by improving growth data and a subtle but discernible easing in global monetary conditions. With inflation broadly contained and policy rhetoric turning less hawkish, investors regained confidence that central banks can now balance growth and price stability. Corporate earnings surprised to the upside in several regions, while liquidity remained ample enough to sustain asset prices. Geopolitical tensions continued to generate headlines but proved less consequential for markets than in earlier episodes, with risk appetite anchored by a perception that the economic cycle still has life left in it. The result was another month of broad, if uneven, gains across global asset classes.
Chart 1: Global Economic Surprise Indices – Inflation and Growth
Index
Source: Bloomberg
United States
The U.S. economy entered the final quarter of the year on a softer footing. October data showed cooling momentum in retail sales and employment, while corporate sentiment began to weaken under the weight of tight credit conditions. The Federal Reserve held rates steady, signalling a cautious shift towards data dependency as the full effects of past tightening become apparent. Inflation moderated further, helped by easing energy costs and slower shelter inflation. Yet the political backdrop — marked by fiscal uncertainty and a continuing government shutdown — undermined confidence. The Fed’s tone has moved from hawkish to watchful; monetary restraint is doing its work, and the risk of overtightening is now greater than the risk of inflation reigniting.
Europe
Europe’s story in October was one of subdued progress and mild relief. Headline inflation continued its descent, settling just above 2 per cent, allowing the European Central Bank to maintain rates unchanged after its September pause. The tone from the ECB has shifted: policymakers now talk less about curbing inflation and more about supporting a fragile recovery. Fiscal policy remains mildly expansionary, with governments cushioning real incomes and subsidising strategic investment. Political cohesion, however, remains tenuous, particularly as populist pressures grow in parts of the continent particularly France. For markets, Europe’s policy mix — tight enough to defend the euro, loose enough to avert recession — offers a base for bond market stability but little near-term catalyst for equities.
Chart 2: Europe economy economic surprises improving
(CESI Index – the degree to which economic growth and inflation data is above or below expectations)
Source: Bloomberg
Japan
Japan’s October narrative blended political renewal with policy continuity. The election of Sanae Takaichi as the country’s first female Prime Minister generated a surge of optimism and a renewed sense of national confidence. Her early meetings with the U.S. administration signalled a pragmatic foreign policy reset built on mutual investment and reduced trade frictions. Domestically, the Bank of Japan maintained its gradual normalisation path, tolerating higher long-term yields but keeping short-term rates near zero to safeguard the recovery. Inflation, running close to 3%, remained above target but is no longer purely cost-driven. The confluence of political stability, rising corporate profits and cautious policy flexibility has turned Japan into one of the most investable stories among developed markets.
Chart 3: Japan Large Company Tankan Confidence Improving
Source: Bloomberg
Asia ex-Japan
Across Asia ex-Japan, October confirmed the region’s standing as the world’s main growth engine, albeit with diverging dynamics. India’s central bank left policy rates unchanged, confident that growth near 7 per cent can be sustained without stoking inflation. China’s authorities combined modest monetary easing with targeted fiscal measures, supporting property and manufacturing without unleashing a credit surge. Southeast Asian economies benefited from currency stability and the easing in food and energy prices, allowing central banks to pause after an earlier tightening cycle. Political calm across the region, from recent hot spots Indonesia to Thailand, provided a supportive backdrop for investment. The focus has shifted from emergency stabilisation to nurturing domestic demand — a subtle but significant turn that sets Asia apart in a world edging towards stagnation
Emerging Markets ex-Asia
Emerging markets outside Asia entered October on firmer footing, helped by a softer U.S. dollar and a renewed appetite for risk assets. Latin America remained the standout, with Brazil’s central bank cutting rates again as inflation continued to drift towards target, and Mexico maintaining policy restraint ahead of 2026 elections to anchor credibility. Fiscal positions across the region improved marginally, aided by robust commodity revenues and stronger currencies. In Central and Eastern Europe, growth stabilised after a bruising energy-price shock, allowing several central banks — notably Poland and Hungary — to ease policy further. Political transitions were mostly benign: Argentina’s newly elected government struck a more pragmatic tone, while South Africa’s reform agenda regained some traction amid power-supply improvements.
The tick up in the surprise indices (Chart 2) for both the broad EM bloc helped their financial markets to deliver solid gains.
Asset Markets
Chart 4: Key Asset Class returns since January 2022
rebased to Jan ’22=100
Source: Bloomberg
Equity Markets
Global equity markets extended their advance in October, gaining 2.0% on the month to bring year-to-date returns close to 20%. The rally was broad-based, led by cyclical markets and technology-heavy indices, with investors encouraged by stabilising inflation and the prospect of monetary easing in 2025.
The United States added 2.4% over the month, supported by resilient corporate earnings and softer inflation data. The NASDAQ, up 4.7%, continued to lead global performance, reflecting enthusiasm for technology and AI-linked sectors.
Europe ex-UK edged higher by 0.5%, with energy and industrials lagging, while the UK delivered a stronger 4.2% return as sterling weakness buoyed multinational earnings. Switzerland remained subdued, up only 1.0%, constrained by defensive sector positioning and a firmer franc.
In Asia, Japan rose 3.4% in October and 13% over three months in dollar terms, as political renewal and ongoing corporate reform supported confidence. Note that the price weighted Nikkei Index was up an impressive 14.5%. Asia ex-Japan outperformed with a 4.5% gain, reflecting broad resilience across India, ASEAN and Korea. Within the region, China corrected by nearly 4% after its strong summer rally, but remains the best-performing major market this year, up 36% year-to-date.
After several months of relative underperformance, India’s large-cap market staged a meaningful recovery in October, gaining around 4 %. The rebound was broad-based, led by financials, industrials and consumer names, as investor sentiment improved on resilient domestic growth and contained inflation. The move suggests that the long stretch of consolidation may be ending, with institutional flows rotating back into blue-chip names after months of preference for mid- and small-caps. Monetary policy remained steady, and corporate earnings revisions turned positive, hinting at renewed investor conviction that India’s growth story remains intact
Across emerging markets, equities gained 4.2% in October and 13% over three months, powered by Brazil’s strong 17% quarterly surge and improving political tone. With global yields stabilising and the dollar softening, investor interest has rotated towards EM equities and local-currency assets.
Overall, October reinforced a familiar pattern: leadership from technology and Asia, rotation into select emerging markets, and modest but stable returns across developed markets. The data suggest that 2025 may begin with investors shifting from rate-sensitive growth plays towards regions with earnings momentum and policy flexibility.
Table 1: Equity Market returns in October
Source: Bloomberg
Small-Cap Perspective
Investor enthusiasm for small-caps faded in October. In the United States, the Russell 2000 trailed the S&P 500 as investors sought the relative safety of large, profitable tech and industrial names. A similar pattern emerged in Asia, where the MSCI AC Asia Pacific Small Cap Index underperformed the regional large-cap benchmark by roughly three percentage points, continuing a decline that began in September. Europe showed little sign of divergence, with small-caps broadly flat versus large-caps. The weakness reflects tightening liquidity, lingering growth uncertainty, and a preference for quality balance sheets. While valuations for small-caps look historically attractive, the market has yet to price in a broad recovery in earnings or risk appetite — suggesting that investors remain in “big-is-beautiful” mode until rate cuts or stronger global growth materialise.
Equity Sector Performance
Sector leadership in October was clear-cut: technology once again set the pace, rising 6.5% on the month and nearly 15% over three months, confirming its dominance as the cycle’s growth engine. Banks remained the year’s standout, up 38% year-to-date, as stable yields and solid earnings underpinned valuations even as momentum eased marginally in October. Healthcare regained ground, advancing 3.1%, marking a comeback after months of underperformance as investors rotated into defensive growth. Consumer discretionary also delivered steady gains, while energy and consumer staples slipped, reflecting the shift away from inflation hedges and into sectors aligned with earnings visibility and innovation. The overall pattern suggests markets continue to reward high-quality cyclicals and technology-linked growth, with a renewed appreciation for balance-sheet strength.
Table 2: Global equity sector returns in October
Source: Bloomberg
Bond markets
Bond markets posted solid gains in October, with the Global Aggregate (hedged) up 0.8% and investment grade adding slightly less at 0.5%. With mahor central banks hesitatnt about the rate call , emerging market sovereigns in dollars led with a gain of 1.7%. The US curve remains conspicuously steep, a mix of term-premium rebuild and heavy Treasury supply even as the front end looks toward eventual Fed easing. High yield eked out just 0.2% as headlines around liquidity squeezes and rising idiosyncratic stress in private credit bled into broader risk sentiment. The takeaway: quality is being rewarded, and investors are starting to price a more discriminating credit cycle. Investors remain nervous about duration. Betting on duration has been a successful strategy for active managers through the year. With the Fed not so sure about future rate cuts the duration call has become more hazardous
Table 3: Bond market returns In October
Source: Bloomberg
Chart 4: US and JGB 30-year Bond Yields Drift Lower as the Inflation Risk Appears to Abate
Source: Bloomberg
FX and Precious metals
Currency markets saw a modest reversal in October, with the dollar staging a rebound after months of
weakness. The US Dollar Spot Index rose 2.1% as markets pared back expectations of imminent Fed rate cuts
and geopolitical uncertainty triggered short-covering. The euro and sterling both softened marginally on
the month, reflecting subdued European data and growing rate-cut speculation from the ECB and Bank of
England. The yen weakened further, despite occasional signs of intervention, as yield differentials and
capital outflows persisted. Precious metals paused for breath after a powerful multi-month rally: gold
rose 3.7%, consolidating gains after climbing more than 50% year-to-date. Investors remain heavily
positioned in bullion as a hedge against policy missteps and political risk, yet the recent dollar
firmness has curbed further upside. Bitcoin, meanwhile, slipped 4.5%, giving back part of its earlier
gains, as speculative appetite waned amid shifting liquidity expectations.
Table 4: Monthly performance of precious metals and currencies for October
Source: Bloomberg
