Weekly Commentary: 25 July 2022 – 31 July 2022
The stock market carried over momentum from late the previous week as investors appeared to welcome signs of a slowing economy and fading inflationary pressures. Value as loosely represented by the Dow Jones Industrial Average (+2%) did well. The S&P 500 (+2.56%) and NASDAQ Composite (+3.33%) also proved its strength. The Hang Seng index (+1.53%) however, was the worst overall performer last week.
The U.S. consumer price index (CPI) has accelerated by 0.5 pp to 9.1% YoY in June, currently the highest in the trailing 40-year period. On the positive side, the Federal Reserve’s preferred gauge – core inflation, fell by 0.1 pp to 5.9% YoY. The U.S. five-year inflation expectations had also declined sharply in early July to 2.8%, the lowest in over a year (University of Michigan, July 2022). Thus, market sentiment turned slightly positive by the end of the week as it is seemed more likely that the next rate hike will stay at what has been priced in at 75 bps. Inflation remained elevated globally and has reached our shores as Singapore’s CPI in May increased by 0.2 pp MoM to 5.6% YoY, the highest since the GFC, while core inflation also moved up by 0.3 pp to 3.6% YoY. Nearly four dozen countries have raised interest rates in the past six months as central banks hope to contain inflation by increasing borrowing costs and slowing down growth on the demand side, at the risk of driving the global economy into a recession. Inflation is also likely to remain high in the second half of 2022 due to lack of resolutions to the current energy and commodity supply constraints, propagated by the Ukraine-Russia conflict that could last for years according to the NATO head a month ago.
As can be seen below, the performance from the global REIT markets were mixed again last week but the overall 12-month yield spreads remained mostly positive and favorable towards the forward total returns. Back at home, the iEdge S-REIT Index (+0.94%). With regards to the pandemic, Singapore is experiencing a new wave of infections as the 7-day moving average of total COVID-19 cases stayed elevated at around nine thousand cases. There are no changes in the COVID measures for now but it was stated by the Singapore government that future tightening has yet to be ruled out.
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