Weekly Commentary: 08 August 2022 – 14 August 2022
The stock market had mixed performance last week as the newly released U.S July new job claims and unemployment rate were better than estimates. The S&P 500’s (+0.39%) performance was quite muted while growth stocks as loosely represented by the NASDAQ Composite (+2.18%) outperformed the Dow Jones Industrial Average (-0.11%). Other key market indices including the STI (+1.78%) were in the positive, except for the Hang Seng (-2.16%). The eleven S&P 500 sectors were also mixed with the growth sectors such InfoTech (+1.16%), Consumer Discretionary (+1.17%), and Communication Services (+1.16%) delivering the best performance. Meanwhile, Energy (-6.80%), Real Estate (-1.32%), and Materials (-1.29%) being the worst performers.
The next market focus is on the July U.S. inflation data that will be released this Wednesday. 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. Inflation remained elevated globally and has reached our shores as Singapore’s CPI in June rose by 1.1 pp MoM to 6.7% YoY, the highest since the GFC, while core inflation also moved up by 0.8 pp to 4.4% 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.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury further fell by 16 bps to -0.40% last week. Both the U.S 2-year and 10-year treasury yield climbed by 33 bps to 3.23% and by 17 bps to 2.83% respectively. The overall stock market sentiment turned more risk-on with slight drop in volatility as the global High Yield (HY) – Investment Grade (IG) spread further contracted by 38 bps to 2.86% and the CBOE Volatility Index (VIX) also fell by 15 bps to 21.15%.
As can be seen below, all of the global REIT markets reported positive gains and the overall 12-month yield spreads remained favorable towards forward total returns. Back at home, the iEdge S-REIT Index (+1.63%) and all of the S-REIT subsectors were largely in the positive with the exception of Healthcare (-0.47%). Industrial (+0.22%) also relatively underperformed and made up the bottom two. In contrast, Office (+0.88%) and Hospitality (+0.87%) were the best performing subsectors. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated, but saw slight improvement as the weekly figure dropped to around seven 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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