Equities
Equities rose for a ninth straight month in October, A key point though is that there was severe volatility during the middle of the month with the index down 7%, there was a sharp recovery at the tail end of the month. Markets were rattled initially as investors struggled with how to best gauge global economic health amidst the myriad of weaker economic data being released, particularly in the eurozone. The recovery in the second half was on the back of a good US Q3 earnings season as well as increased monetary expansion(QE) in Japan.
World equities rose by 1.5% in October giving a total return of 15.3% for the first ten months of the year. There was a mixed bag of returns amongst the major markets in local currency terms during the month ranging from plus 4.6% in Hong Kong to minus 2.7% in Europe. The US market was in positive territory (+2.3%).

Bonds
The Federal Reserve and the Bank of England are now expected to keep interest rates at record low levels until at least the second quarter of 2015. The ECB engaged in outright purchases of covered bonds during October and are expected to begin purchasing asset backed securities during November.
The German 10-year bond yield ended October lower at 0.84%, and not far off its all-time low of 0.76% on 15 inst. Equivalent US rates fell from 2.49% to 2.32% during the month.

Commodities
Commodity prices overall were down by 2.4% (Dollar) in October. They have now lost all and more of the strong gains made during the first half of the year.
• Oil prices dropped considerably as OPEC producers kept supply at high levels. The Brent (European) oil price was down 9% at $86 per barrel while West Texas (US) was down 12% at $81 per barrel.
• The gold price fell sharply again in October, down over 3% at $1,172 per troy ounce. Gold had reached an all-time high of $1,889 in August 2011. But has been on a downward trend since.
• The euro currency was flat to slightly weaker against a number of other major currencies during October. The €/$ rate moved from 1.26 to 1.25 during the month.

Conclusion
There is likely to be increased volatility in financial markets over the coming months in anticipation of the Federal Reserve and the Bank of England beginning to tighten the controls on liquidity conditions. Conversely, the ECB may be forced to engage in some form of quantitative easing given the lacklustre economic growth outlook for the eurozone area. Equities continue to maintain a strong footing due to the expectation of reasonably strong earnings’ growth and low interest rates; in addition, equities remain better value relative to other asset classes. Government bond yields are expected to eventually rise from current ultra-low levels.