Global equities continued to push higher in October, with many major indices once again hitting fresh record highs during the month. Markets across Europe also posted strong advances, with the STOXX 600 rising 2.5% to new record highs.
In Asia, the Nikkei 225 surged 17% over the month. Japan’s market has already had a strong year, supported by the return of modest inflation and wage growth after decades of deflation, alongside hopes around the normalisation of monetary policy. A softer yen has boosted exporters’ earnings in foreign-currency terms, while investors have also responded positively to corporate reforms, better governance, and share buybacks. Japan’s deepening role in AI-related supply chains has added another layer of appeal, and optimism around new Prime Minister Sanae Takaichi’s pro-growth agenda has further fuelled the rally.
US markets
Optimism around the technology sector, and particularly ongoing enthusiasm for artificial intelligence, remained a key driver of momentum. In the U.S., the Nasdaq Composite jumped 4.7% for the month, while the S&P 500 gained 2.3% and the Dow rose 2.5%. The S&P 500 and Dow have now logged six consecutive monthly gains, while the Nasdaq has recorded seven, its longest winning streak since 2018.
Globally, markets extended the year’s positive momentum in October, supported by a solid earnings season in which AI-related names once again featured prominently. US banks (despite brief disquiet around the regional banking sector) and healthcare companies also contributed to optimism about the economic outlook.
With the U.S. government shutdown limiting the release of official data, attention turned to private-sector surveys. The S&P Global/Markit services index (which captures small and mid-sized businesses) showed the U.S. services sector remained in expansion mode for a 32nd straight month. The financial and technology sectors are performing well while consumer-facing services such as leisure and recreation also improved amid lower interest rates, and a strengthening of foreign demand for the first time in six months. Tariff-driven price pressures eased, with “prices charged” rising at the slowest pace in five months.
While official economic releases were limited, one key data point available to the Federal Reserve was a softer-than-expected inflation reading. The CPI rose 0.3% in September, leaving the annual rate at 3.0%, below expectations of 3.1%. The lower print supported the Fed’s decision to deliver its second rate cut of the year, bringing the key policy rate range to its lowest level since 2022. The central bank also announced an end to its balance-sheet runoff, marking the cessation of “quantitative tightening” and signalling a clear shift toward easier policy.
Fed Chair Jerome Powell noted that while the jobs market is cooling, tariffs present an ongoing risk to inflation, which remains above the Fed’s 2% target. He described the approach as a “risk-management exercise,” with upside risks to inflation and downside risks to employment. Powell also cautioned there was no guarantee of a rate cut in December, emphasising that policy is not on a preset course. Markets nonetheless anticipate the Fed will err on the side of caution, pricing in a strong of another cut in December.
An easing of trade frictions between the U.S. and China late in the month added to the upbeat tone. Ahead of the meeting between Presidents Xi Jinping and Donald Trump, China reported industrial profits up 21.6% year-on-year in September, the biggest rise in nearly two years, and five times the forecast. The data suggested that Beijing’s stimulus efforts and its crackdown on inefficient firms are starting to gain traction, with the manufacturing sector showing resilience despite tariff pressures.
Both sides ended up striking a more conciliatory tone during a fifth round of trade talks. Washington agreed to reduce certain tariffs, while Beijing delayed new rare-earth export curbs and pledged to increase U.S. soybean purchases. Both sides also agreed to establish a framework for ongoing discussions on data security and export controls. While structural issues remain unresolved, the moves provided optimism that the “trade storms” may finally be calming.
Market volatility, as measured by the VIX Index, rose early in the month as trade tensions resurfaced ahead of the Trump-Xi meeting, before receding sharply in the second half of October. Another volatile mover was gold, which hit a record high of around US$4,380 per ounce amid heightened geopolitical uncertainty and expectations of lower U.S. interest rates. A softening in trade tensions triggered a material correction, though gold remains up around 50% for the year.
Australian economy
Across the Tasman, the ASX200 touched a record high during the month, before trimming gains, closing up 0.4% for the month.
There had been some early optimism around the potential for another rate cut following signs of a softening labour market. The economy added a modest 14,900 jobs in September, while the unemployment rate rose from 4.3% to 4.5%, the highest in nearly four years. Those hopes faded after the September-quarter CPI came in hotter than expected, rising 1.3% quarter-on-quarter and 3.2% year-on-year. The RBA’s preferred trimmed-mean measure climbed to 3.0% from 2.7% in June - the first increase in core inflation since 2022. The data reinforced concerns that inflation remains above the RBA’s 2–3% target band and is proving sticky, leading investors to expect rates will likely remain on hold well into 2026 until there is clearer evidence of sustained disinflation.
It is also worth highlighting that the RBA didn’t raise rates as much as the RBNZ did with the onset of inflation, and that helped their economy relatively speaking. The cash rate in Australia only went up to 4.35% (it is 3.6% now), while the RBNZ took the OCR up to a high of 5.5%
There was positive news on the trade front. Critical minerals were in focus following a landmark agreement between Australian Prime Minister Anthony Albanese and U.S. President Donald Trump aimed at strengthening supply-chain security and reducing U.S. dependence on China for rare-earths and other strategic resources. The deal includes a US$8.5 billion pipeline of Australian and American projects, with both governments committing US$1 billion each over the next six months to support early-stage ventures in lithium, gallium, and rare-earth production.
NZ economy
The NZX 50 rose 1.9% in October, bringing the benchmark close to record highs. Gains were supported by a larger-than-expected 50-basis-point cut to the Official Cash Rate, which lowered borrowing costs to their lowest level since 2022. The Reserve Bank’s decision reflected ongoing softness in domestic demand and ample spare capacity in the economy.
Annual inflation for the September quarter came in at 3.0%, the highest since mid-2024 and at the top of the RBNZ’s 1–3% target band, though broadly in line with expectations. While food and rent inflation have eased, overall growth remains subdued, and the labour market has loosened.
Business surveys showed that the manufacturing and services sectors remain in contraction, though business confidence improved modestly as firms became more optimistic about future activity. Consumer confidence, though fragile, has stabilised amid lower mortgage rates and expectations of further easing. Net migration inflows have slowed sharply, while housing data suggest early signs of recovery as lower lending rates filter through.
Tourism continues to perform well, while agriculture remains a bright spot. A major development during the month was Fonterra’s approval of the NZ$4.22 billion sale of its global consumer and associated businesses (Mainland Group) to Lactalis. Around NZ$3.2 billion will be distributed to farmers, with positive flow-on effects for the wider economy once the deal completes in the first half of 2026.
Looking ahead
The remainder of the U.S. earnings season will be closely watched, particularly results from Nvidia, the world’s most valuable company, which could offer further insight into the scale and sustainability of AI-driven demand. The ongoing U.S. government shutdown, now the longest in history, remains in focus as investors await clarity on back pay for federal workers and the resumption of key data releases. Attention will soon turn to the Federal Reserve’s December meeting, where markets currently expect another rate cut.
On the global stage, progress toward a formal U.S./China trade agreement will be closely monitored, with recent conciliatory gestures from both sides providing encouragement. Developments in the Supreme Court case challenging President Trump’s tariffs will also be watched closely.
In Australia, focus will turn to upcoming inflation, labour-market, and GDP data, which will help clarify how persistent price pressures remain and whether the RBA has scope to ease in 2026.
In New Zealand, attention will centre on the next RBNZ meeting at month-end, with markets expecting at least a 25-basis-point cut as policymakers continue to support growth. Early signs of improvement are emerging, and forthcoming data will help confirm whether the domestic recovery is beginning to take hold. The reporting season will also shed further light on this, providing a broader read on how the economy and kiwi corporates are performing.