Weekly Commentary: 17 April 2023 – 23 April 2023
Major benchmarks ended higher last week as inflation pressures receded a bit more than expected. US inflation eased in March to its lowest level in nearly two years, down from February’s 6% increase and the smallest gain since May 2021. However, inflation remains elevated, well above the 2.1% average in the three years before the pandemic and the FED’s 2% target. High inflation and a tight labour market will lead FED officials to raise interest rates at their next meeting. The benchmark federal-funds rate is now at a range between 4.75%-5% and investors are expecting at least one further rate hike.
China’s goods seemed to have bounced back sharply in March, reflecting greater demand in Asia and Europe as well as improved supply chain conditions. Outbound shipments from China soared 14.8% from a year earlier, reversing the 6.8% decline recorded during the first 2 months of 2023. China does not seem to feel the brunt of the inflation effects as its CPI index rose 0.7% in March from a year earlier, down from a 1% the previous month.
Stock returns were higher over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+1.20%), S&P 500 Index (0.82%), NASDAQ Composite Index (+0.30%). Other key market indices that generated positives returns consist of MSCI World (+1.30%), Hang Seng Index (+0.53%), and MSCI AC ASEAN Index (+0.83%). Three sectors of S&P 500 registered losses this week –Information Technology (-0.35%) Utilities (-1.34%) and Real Estate (-1.35%). Main outperformers for the week were from subsectors such as Industrials (+2.10%), Energy (+2.50%), and Financials (+2.86%). 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 18bps to -0.59%, driven by U.S 2-year and 10-year Treasury yields rising 27 bps to 4.11% and 8 bps to 3.51% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 46bps to 3.05% while the CBOE Volatility Index (VIX) has dropped lower by 253 bps to 17.07%.
This coming week, China will release its first-quarter GDP report, and investors will weigh whether they can achieve the target for annual growth of 5%, a conservative estimate compared with the breakneck speed seen in previous years. UK will also release its PMI and unemployment figures for March, and the outlook for inflation.
The global REIT market’s return varied across numerous benchmarks. Malaysia NAREIT Index ( -0.51%) and MSCI US REIT (-1.95%) were the REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+0.48%) and all of its subsectors generated positive weekly returns with Office (-0.02%), the only notable sector that dropped 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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