Weekly Commentary: 27 March 2023 – 02 April 2023
Returns across the major benchmarks varied widely as recession worries and banking crisis still weighed heavily on investors’ mind. Treasury yields fell as investors are risk-off and buying safe haven debt. In the past week, Deutsche Bank was the next bank to have risk of bankruptcy as cost of insuring the German’s bank debt against the risk of default jumped to a more than four-year high. Deutsche Bank tumbled 8.5% after a sharp jump in insuring against default of the firm. The Federal Reserve had also raised official short-term rates by 25 bps. They have raised rates despite stress in the banking industry following the collapse of 2 regional banks. The FED’s rate-setting committee believe there are more room for higher rates to restore price stability and will climb to another quarter-percentage point by the end of the year.
US-China relations were further strained as lawmakers at a House Hearing peppered Tiktok CEO, Shou Zi Chew on the app’s ties to China, and China retaliated and said that they would fight any US attempt to force the company’s sale by its Chinese owners.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+1.18%), S&P 500 Index (1.41%), NASDAQ Composite Index (+1.68%). Other key market indices that generated positives returns consist of MSCI World (+1.41%), Hang Seng Index (+2.03%), and MSCI AC ASEAN Index (+2.53%). 3 S&P 500 sectors registered losses this week – Utilities (-1.16%) and Real Estate (-1.30%). Main outperformers for the week were from subsectors such as Communication Services (+3.40%) and Energy (+2.29%) and Materials (+2.16%). 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 5bps to -0.46%, driven by U.S 2-year and 10-year Treasury yields rising 3 bps to 3.87% and -2 bps to 3.40% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 16bps to 3.67% while the CBOE Volatility Index (VIX) has dropped lower by 377 bps to 21.75%.
This coming week, the Commerce Department reports on US household spending and income in February. Consumer spending jumped 1.8% in January from the prior month. They will also release its personal-consumption expenditures price index. The European Union will also release March inflation figures for the eurozone. The bloc’s February consumer prices were 8.5% yoy, the fourth straight month of easing Eurozone inflation.
The global REIT market’s return was varied across the numerous benchmarks. Hang Seng REIT index ( -1.90%), ASX 200 A-REIT Index (-3.17%), and FTSE EPRA Nareit Germany Index (-10.38%) were the REITs that dropped more relative to the rest. Closer to home, the iEdge S-REIT Index (-1.22%) and all of its subsectors generated negative weekly returns with Healthcare (-2.16%), Data Center (-3.08%), Office (-4.00%) was the notable sector that drops the most last week. 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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