Weekly Commentary: 22 May 2023 – 28 May 2023
Major benchmarks ended higher last week even though there were concerns over the health of the US regional banking sector and paused negotiations over the debt ceiling deal. Investors were buying short-dated US Treasuries and expectations are that the Federal Reserve would not raise interest rates after Jay Powell warned tighter credit conditions- the result of the US banks turmoil. The rise in S&P 500 was due to the outperformance of mega-cap technology-related stocks like Alphabet Meta, NVIDIA and AMD. Retail sales rose to a seasonally adjusted 0.4% last month from the month before. They spent more on autos and dining, while boosting online purchases.
European stocks however, did well. They rose on Friday, pushing Germany’s Dax close to a record high. Germany’s PPI for April shown that the inflation rate had fallen to 4.1% compared with 6.7% in March. It was helped by European natural gas prices falling back to normal trading range for the first time since the start of the energy crisis, falling below $30 per megawatt hour.
Stock returns were higher over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.50%), S&P 500 Index (+1.71%), NASDAQ Composite Index (+3.08%). Other key market indices that generated positives returns consist of MSCI World (+1.27%) only. 3 S&P 500 sectors registered positive returns last week – Information Technology (+4.25%), Consumer Discretionary (+2.64%) and Communication Services (+3.06%). Main underperformers for the week were from subsectors such as Consumer Staples (-1.63%), Real Estate (-2.37%) and Utilities (-4.27%). 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 remained unchanged at -0.52%. driven by U.S 2-year and 10-year Treasury yields rising 26bps to 4.25% and rising 20 bps to 3.67% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 8bps to 3.34% while the CBOE Volatility Index (VIX) has fallen by 22 bps to 16.81%.
This coming week, UK inflation figures will be released. BOE is expecting the annual rate of inflation to drop 2% from 10.1% in March to 8.4% in April. Central Bank in Indonesia, South Africa, South Korea and Turkey are expected to leave their interest rate unchanged.
The global REIT market’s return was varied across the numerous benchmarks. FTSE EPRA Nareit emerging Malaysia index (-3.02%) and FTSE ST All-Share Real Estate Investment Trusts Index SGD (-2.01%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+0.07%) and all of its subsectors generated mixed weekly returns with Diversified (-0.94%), the notable sector that drop the most last week while Real Estate Operating Companies outperformed (+2.88%). 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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