Weekly Commentary: 20 February 2023 – 26 February 2023
The major benchmarks returns were mixed as there were healthy growth and profit signals against worries that inflation trends might be taking an unfavourable turn. The overall CPI climbed 0.5% in January, the most in three months, and was bolstered by energy and shelter costs. When compared y-o-y, the measure was up 6.4% from a year earlier, according to data from the Bureau of Labour Statistics. Another metric, Core CPI, which excludes food and energy, advanced 0.4% last month and was up 5.6% from a year earlier. The figures, when paired with January’s blowout jobs report and signs of enduring consumer resilience, underscore the economy’s durability. The path to stable prices will likely be both long and bumpy. The producer price index rose 0.7% in January, its biggest gain since June, while core producer prices rose 0.5%, the most since May. Nevertheless, producer prices continued their steady and steep decline since June y-o-y, falling almost in half, from 11.2% to 6.0%. Initial jobless claims, a proxy for layoffs, decreased by 1000 to a seasonally adjusted 194,000 last week and weekly claims have remained below the 2019 pre-pandemic average of about 220,000 since the start of the year, a sign of continued tightness in the labour market. Investors have been piling into high-quality corporate bonds this year at a record rate, reflecting enthusiasm for an asset class that is typically seen as relatively low risk but now offers the best returns in years. A total of $19billion has poured into funds which buy investment grade corporate debt around the world since the start of 2023.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.02%), S&P 500 Index (-0.20%), and NASDAQ Composite Index (+0.63%). Most of the major key market indices were in negative territory last week. 3 notable S&P 500 sectors registered losses this week – Energy (-6.46%), Real Estate (-1.34%), and Materials (-0.90%) Main outperformers for the week were from subsector such as Consumer Discretionary (+1.66%) only. 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 2bps to -0.80%, driven by U.S 2-year and 10-year Treasury yields rising 10 bps to 4.62% and 8 bps to 3.81% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 9bps to 3.05% while the CBOE Volatility Index (VIX) has dropped 51bps to 20.02%.
The week ahead will be dominated by talk of U.S. Household spending and home sales in focus. Consumer spending fell 0.2% in December from the prior month, the second consecutive monthly drop. More recently, U.S. retail sales, which capture part of consumer spending, jumped 3% in January. The U.S. will also release its personal-consumption expenditures price index, a gauge of inflation closely watched by the Fed. The Commerce Department will also release data on new home sales in January, which account for about 10% of the housing market.
The global REIT markets returns were mixed over the past trading week. Closer to home, the iEdge S-REIT Index (-1.26%) and all of its subsectors generated negative weekly returns except Diversified REITs (+0.96%). Industrial (-1.17%), Retail ( -2.31%), and Healthcare (-0.98%) was the subsector that fell more than the other sector compared to the index. 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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