Capital markets almost universally posted dismal performance in October. The straightforward countercyclical environment meant that recent top performers such as U.S. growth shares suffered the steepest declines. The most cyclically-oriented sectors (consumer discretionary, energy and industrials) were hit the hardest, while classic defensive sectors (consumer staples and utilities) were positive. Asia-Pacific stock markets were also down sharply, particularly China. Latin America shares gained—presumably on ballot-box expectations for Jair Bolsonaro, Brazil’s conservative probusiness president-elect.

Fixed income was not spared in October’s selloff; higher-risk segments— like high yield and emerging-market debt—fared worst, but investmentgrade bonds also declined. Government bond yields declined in the UK and EU, but increased in the US. West Texas Intermediate crude-oil prices peaked at the beginning of October before descending more than 14% by the end of the month; the trend was largely similar in other commodities.

Brexit negotiations continued past the 17 October deadline, days after Prime Minister Theresa May suggested at an EU summit to extend the post-divorce transition period. The proposal reportedly earned a warm reception; although EU leaders have since continued to develop no-deal contingency plans. Negotiations appear to hinge on the EU’s insistence that the withdrawal agreement allow Northern Ireland to remain in its single market and customs union; the UK prefers a temporary customs arrangement while negotiating a more permanent customs union between the EU and the entire UK during the transition period.

A late-October report revealed that May had negotiated the right of UKbased financial services companies to continue operating in EU markets after Brexit (although the prime minister’s office characterised the report as speculative). The deal would establish a relationship based on the principle of equivalence (that is, the premise that the financial regulatory frameworks of the two areas are in broad alignment)—which is what currently governs the EU-US relationship, for example. German Chancellor Angela Merkel announced she would not stand for re-election as leader of the Christian Democratic Union later this year or as chancellor in 2021 amid poor regional election results for her governing coalition.

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