Weekly Commentary: 24 April 2023 – 30 April 2023
Major benchmarks ended mixed last week as investors were anticipating for the earnings release for Big Tech companies as they are slated to released their 1st quarter earnings result this week and the results could send major US indexes swinging. New York Fed President John Williams has also signal that the central bank may raise interest rate as inflation is still above Fed’s target of 2% and they will use their monetary policy tools to restore price stability. Consensus on the street suggest that there is greater than 80% change that the Fed will raise rates by a quarter point at its May 2-3 meeting.
ECB has also indicated that they will continue to raise rates over 3% and will only stop after wage growth starts to fall. Hourly labour costs in the EU rose by a record 5.7% in the fourth quarter from a year earlier, exceeding the pace of wage rises in the US. A new future policy decision has also been planned, to guide future rates moves by a combination of inflation forecast, past changes in underlying price pressures and how much impact its policies are having.
Stock returns were lower over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.19%), S&P 500 Index (-0.09%), NASDAQ Composite Index (-0.42%). Other key market indices that generated positives returns consist of Straits Times Index (+0.58%) only. 3 S&P 500 sectors registered losses this week – Information Technology (-0.46%) Communication Services (-3.05%) and Energy (-2.53%). Main outperformers for the week were from subsectors such as Consumer Staples (+1.79%) and Utilities (+2.50%) and Real Estate (+1.59%). 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 -0.61%, driven by U.S 2-year and 10-year Treasury yields rising 7 bps to 4.17% and 5 bps to 3.56% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 10bps to 3.15% while the CBOE Volatility Index (VIX) has dropped lower by 30 bps to 16.77%.
This coming week, there will be release for first estimate 1st quarter GDP numbers for the US, South Korea and the eurozone. In Japan, there will also be a rate-setting meeting, and investors will be seeing whether they will stick to the decade-long ultra-loose monetary policy or announce a rise of rates as March’s core CPI was higher than expected at 3.8%, its higher y-o-y since 1981.
The global REIT market’s return was varied across the numerous benchmarks. Malaysia NAREIT Index ( -1.86%) and FTSE EPRA Nareit Germany REIT (-1.60%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-0.69%) and all of its subsectors generated mixed weekly returns with Healthcare (-2.61%), the notable sector that drop 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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