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Weekly Outlook

Weekly Outlook 15 August 2022 – 21 August 2022

Weekly Commentary: 15 August 2022 – 21 August 2022

The stock market rallied after the U.S inflation data released last week seemed to have indicated a peaking trend – The U.S. Consumer Price Index (CPI) had decelerated by 0.6 pp MoM to 8.5% YoY in July and core inflation stayed constant at 5.9% YoY. We saw positive returns from the major three indices where the S&P 500 (+3.31%) led the group while growth stocks as loosely represented by the NASDAQ Composite (+3.1%) had the slight edge over the Dow Jones Industrial Average (+2.99%). Other key market indices including the STI (+0.31%) were in the positive as well, except for the Hang Seng (-0.11%). All eleven S&P 500 sectors reported positive returns with Energy (+7.45%), Financials (+5.49%), and Materials (+5.21%) delivering the best performance. In the other hand, Consumer Staples (+1.25%), Healthcare (+1.66%), and InfoTech (+2.47%) relatively underperformed.

Investors’ next focus is on the FOMC meeting minutes that would be released this week (17th August). The stock market rally is likely to keep its momentum if there are any indications that the Fed would be less aggressive or stayed on what has been priced in at 75 bps for the next hike in September. Nevertheless, inflation remained elevated globally. Singapore’s CPI in June also rose by 1.1 pp MoM to 6.7% YoY, the highest since the GFC, while MAS 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 it, but the level 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, made worst by the ongoing Ukraine-Russia conflict.

The yield-curve continued to be inverted as the 10Y-2Y US Treasury further slightly fell by 1 bps to -0.41% last week. Both the U.S 2-year and 10-year treasury yield climbed by around 1 bps to 3.24% and 2.84% respectively. The overall stock market sentiment is still risk-on with a continued drop in volatility as the global High Yield (HY) – Investment Grade (IG) spread further contracted by 10 bps to 2.77% and the CBOE Volatility Index (VIX) also fell by 162 bps to 19.53%.

As can be seen below, the global REIT markets saw mixed returns. However, the overall 12-month yield spreads are largely positive and remained favorable towards forward total returns. Back at home, the iEdge S-REIT Index (+0.49%) and its S-REIT subsectors were in the positive, except for Office (-1.04%) and Retail (-0.28%). In contrast, Diversified (+1.26%) and Healthcare (+1.09%) were the best performing subsectors. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated, but we continued to see the figure to be down trending and reached around five thousand cases by the end of the week. There are no significant changes in the COVID-19 measures as well.

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