Weekly Commentary: 08 May 2023 – 14 May 2023
Major benchmarks ended lower last week as the Federal Reserve raised rates last week and brought its federal-funds rate to a range between 5% and 5.25%, a 16-year high. There are also concerns that US risks default without increase of the debt ceiling, potentially as early as June 1. However, in spite of all these negatives, April jobs report showed that the labour market remained resilient amid banking amid banking turmoil, rising interest rates and high inflation. They added 253,000 jobs in April, the best gain since January and the unemployment rate fell to 3.4% in April, matching the lowest reading since 1969 which will only add on to persistent inflation worries as low joblessness kept upward pressure on wages, which grew 4.4% in April from a year earlier, up slightly from a 4.3% annual increase in March.
Elsewhere, the ECB increased its key rate by a quarter percentage point, to 3.25%, a near 15-year high. Expectations on the streets are expecting the ECB to continue raising rates over the coming months even as they anticipate interest-rate cuts from the Fed.
Stock returns were lower over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-1.23%), S&P 500 Index (-0.78%), NASDAQ Composite Index (0.09%). Other key market indices that generated positives returns consist of Hang Seng Index (+0.79%), MSCI Singapore (+0.37%) and MSCI AC ASEAN Index (+0.71%) only. 3 S&P 500 sectors registered positive returns last week – Information Technology (+0.62%) Healthcare (+0.09%) and Utilities (+0.10%). Main underperformers for the week were from subsectors such as Communication Services (-2.29%) and Financials (-2.61%) and Energy (-5.81%). 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 tightened 10bps to -0.49%, driven by U.S 2-year and 10-year Treasury yields falling 9 bps to 3.92% and rising 1 bps to 3.43% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 9bps to 3.25% while the CBOE Volatility Index (VIX) has rose higher by 141 bps to 17.19%.
This coming week, President Joe Biden will be meeting House speaker Kevin McCarthy and other top congressional leaders to address the threat of the nation defaulting on its debt. Disney, Nissan and Rolls-Royce will also be reporting on their latest earnings. April CPI inflation rate data will also be released.
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.
The global REIT market’s return was varied across the numerous benchmarks. FTSE EPRA Nareit Germany (-4.34%) and FTSE EPRA Nareit France REIT (-3.20%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+0.79%) and all of its subsectors generated mixed weekly returns with Office (-0.81%), 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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