Weekly Commentary: 13 March 2023 – 19 March 2023
Markets were down the past week as concerns grew throughout the week about the financial health of Silicon Valley banks as customers pulled deposits after the regional bank was forced to sell and realise losses in securities held on its balance sheet in order to meet capital requirements. There were also concerns about Federal Reserve Chair Jerome Powell needing to do more work in cooling inflation and the hot labour market. The closely watched non-farm payroll report that was released last Friday, showed an increase of 311,000 non-farm jobs in February, above consensus expectations of around 200,000.
In China, the parliament approved a plan to reform the central government institution under the State Council. The reforms constitute the formation of a financial regulatory body and national data bureau and a revamp of the country/s science and technology ministry so as to accelerate the development of critical technologies to reduce its reliance on US technology amid rising bilateral tensions.
Stock returns were down over the last week as observed across the following 3 indices, with the Dow Jones Industrial Average (-4.35%), S&P 500 Index (-4.51%), NASDAQ Composite Index (-4.68%). Most of the major key market indices was in negative territory last week. 3 notable S&P 500 sectors registered losses this week – Financials (-8.46%), Materials (-7.61%) and Real Estate (-6.87%). 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 0bps to -0.90%, driven by U.S 2-year and 10-year Treasury yields falling 32bps to 4.53% and 21 bps to 3.74% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 37 bps to 3.14% while the CBOE Volatility Index (VIX) had jumped 631bps to 24.80%.
The week ahead will be on the release of the US’s February consumer-price index, consumer prices rose 6.4% in January from a year earlier. The Commerce Department will also realease February figures on new residential construction and building permits. The European Central Bank will also announce its latest interest-rate decision.
The global REIT markets returns was down over the past trading week. Closer to home, the iEdge S-REIT Index (-0.84%) and all of its subsectors generated negative weekly return. Retail (-1.03%), Hotel and Resort (-1.26%) and Office (-1.73%) was the notable sectors that dipped more than the sub-sectors. 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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