Weekly Commentary: 09 January 2023 – 15 January 2023
Markets were up slightly the past week except for the Hang Seng Index (6.56%), continuing to rally on expectations of China’s re-opening. 223,000 jobs were added in the month of 2022, exceeding estimates of 205,000, according to the non-farm payroll released by the Labour Department last Friday. Average hourly earnings were up 4.6% in December from the previous year, the narrowest increase since mid-2021, and down from a March peak of 5.6%. 2022 was the second-best year of job creation after 2021, when the labour market rebounded from Covid-19 shutdowns and added 6.7 million jobs. In spite of all these positives, last year’s gain was concentrated in the first seven months of the year as a wave of tech and finance-industry layoffs suggests that the labour market is cooling. That would suggest that 2023 could bring slower hiring or outright job declines as the overall economy slows or tips into recession. Initial unemployment insurance claims data averaged about 215,000 through the end of 2022, a slightly lower figure than 2019’s average. A new subvariant of COVID-19 has also derailed investors’ sentiments as it is the most transmissible variant yet. XBB and XBB1.5 were estimated to account for 44.1% of COVID-19 cases in the United States in the week ending 31st December.
In light of this, stock returns were slightly higher over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+1.50%), S&P 500 Index (1.47%) marginally outperforming the NASDAQ Composite Index (+1.01%). Other key market indices that generated positive returns consist of the MSCI AC ASEAN (+0.44%) and Hang Seng Index (+6.12%). Most of the eleven S&P 500 sectors saw returns in the positive territory, with the exception of Healthcare (-0.17%) and Energy (-0.24%). Main outperformers for the week were from subsectors such as Materials (+3.45%), Communication Services (+3.75%) and Financials (+3.42%). For 2022 as a whole, index returns were negative for the Dow Jones Industrial Average (-8.78%), S&P 500 (-19.44%) and the NASDAQ Composite (-33.10%).
The yield-curve remains inverted as the 10Y-2Y US Treasury spread widened further by 6 bps to -0.69%, driven by U.S 2-year and 10-year Treasury yields dipping 12 bps to 4.25% and 18 bps to 3.56% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened by 22bps to 3.05% while the CBOE Volatility Index (VIX) has climbed lower by 177bps to 21.13%.
This coming, The Labour Department will release its December consumer-price index, a closely watched measure of what consumers pay for goods and services. Consumer inflation may have slowed in recent months, but still, remains historically high. Federal Reserve governor Lisa Cook has also commented that inflation has to fall much more to reach acceptable levels. In Singapore, both the CPI and MAS core inflation have slowed by 0.8 pp and 0.2 pp MoM to 6.7% and 5.10% YoY respectively for the same month. Furthermore, 3Q22 earnings updates have mostly been positive and have lifted market sentiment in the past few weeks. With all of the S&P 500 companies having reported their results for 3Q22, around 71% and 70% of the companies have since reported positive revenue and earnings surprise respectively.
Most of the global REIT markets delivered positive weekly returns with the yield spreads remaining positive. Closer to home, the iEdge S-REIT Index (-0.04%) and its subsectors mostly generated negative weekly returns with Business Trust (+1.77%), Specialized (Pureplay DCs) (+2.65%) and Industrial (+0.39%) the only ones that generative positive returns. On the other hand, Diversified (-0.09%), Healthcare (-0.22%), Hospitality (-0.91%), and Office (-0.96%) were the subsectors that led to the decline during the period. REITs generally have been affected by decreasing yield spread as interest rates surged and investors price in the possibility of reduced distributions stemming from higher financing costs. However, we do expect inflows to return to the sector given the existing attractive valuations on offer and resilience offered by the REIT asset class in light of the waning global growth outlook.
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