Weekly Commentary: 03 April 2023 – 09 April 2023
The U.S. February core Personal Consumption Expenditure (PCE) price index – the Fed’s preferred inflation gauge, was reported to be slightly lower than consensus expectation at 4.6%, although this remains higher over the Federal Reserve’s target of 2%. Nevertheless, the report further fueled stock’s rally last week across all major equity markets. Growth as loosely represented by the NASDAQ Composite Index (+3.38%) was slightly ahead of the Dow Jones Industrial Average (+3.22%), but both were slower than the wide stock market indices – i.e. the MSCI World (+3.78%) and S&P 500 Index (+3.50%). Closer to home, Hang Seng (+2.43%) got the edge over the STI (+1.44%), but Singapore’s stock market gains largely aligned with the overall Asian market. Diving in the S&P 500 sectors’ performance, all eleven sectors ended the week in the positive with Energy (+6.22%), Consumer Discretionary (+5.58%), and Real Estate (+5.31%) being the top three outperformers. The outperformance came as WTI rebounded after declining to the lower range in the trailing 2-year period and the surprise OPEC+ cut on output is expected to keep oil surging higher. Sectors that benefit from more positive business and rate hike sentiments such as Consumer Discretionary and Real Estate have also been benefiting the most from the rally as investors bought into the undervaluation.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread widened 17 bps to -0.56%. Both the U.S. 2-year and 10-year Treasury yields rose by 26 bps and 9 bps to 4.03% and 3.47% respectively. The yield-curve inversion has continued since July 2022, and the dynamic has preceded the previous eight U.S. recessions. However, market sentiment remained risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened by 50 bps to 3.17% and the CBOE Volatility Index (VIX) has also continued to cool down by 304 bps to 18.70%, below its 20-day EMA of 21.18%. The HY-IG credit spread stayed above its 5-year average of 2.85%.
The market focus this week will be mainly targeted to the statements from some of the Fed officials and the U.S. jobs data that will be released by the U.S. Bureau of Labor Statistics. Both will give investors some insights into the Fed’s stance and next move, especially the overall jobs market where hotter jobs growth above consensus expectation could signal a more hawkish Fed policy moving forward.
The global REIT markets delivered positive returns overall with the exception of Germany. For the Singapore REIT market, the iEdge S-REIT Index (+1.44%) and all of its subsectors were in the positive as well except for Office (-2.47%). On the other hand, Healthcare (+3.16%) and Data Centers (+3.35%) were the top-performing subsectors. 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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