Weekly Commentary: 29 May 2023 – 04 June 2023
Markets in the Asia-Pacific region are predominantly showing a positive trend following a provisional agreement to raise the U.S. debt ceiling, achieved by U.S. President Joe Biden and leaders in Congress. The legislation is set to be voted on later in the week.
The Nikkei 225 in Japan has continued its ascent, reaching the highest values since July 1990, a peak not seen in 33 years, with an increase of 1.54%. Similarly, the Topix index also experienced a gain of 1.11%. In Australia, the S&P/ASX 200 index rose 0.98%. Contrarily, the Hang Seng index in Hong Kong has continued its downward trend, marking new lows for the year with a slight drop of 0.12%. Markets in mainland China showed varied performance, with the Shanghai Composite increasing by 0.23% while the Shenzhen Component declined by 0.16%.
The core personal consumption expenditures price index increased 0.4% in April and 4.7% year-on-year, slightly above predictions. Consumer spending maintained despite inflation, jumping 0.8% for the month, while personal income rose 0.4%. Market predictions now see a 56% chance the Fed will enact another quarter-point interest rate hike at the June meeting.
Meanwhile, at the Institute of International Finance conference in Brussels, officials and analysts pointed out that European banks are stronger and more attractive than their U.S. counterparts on several metrics, although regulation and collaboration are still required to stimulate growth in the region. Despite U.S. banks demonstrating greater worth due to stronger growth and profitability since the 2008 financial crisis, top European banks reportedly have better levels of credit default swaps, indicating less risk to debt.
In trending stocks, Nvidia Corp, a leading chip manufacturer, is approaching a market capitalization of $1 trillion, largely due to its strategic focus on artificial intelligence (AI). The company’s stock saw a 24% surge, one of the largest single-day gains for a U.S. stock, after an impressive revenue forecast revealed that Wall Street might have underestimated the transformative potential of AI.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.97%), S&P 500 Index (+0.35%), and NASDAQ Composite Index (+2.52%). Other key market indices that generated positive returns consist of STI Index (+1.27%) only. 3 S&P 500 sectors registered positive returns last week – Information Technology (+5.12%), Consumer Discretionary (+0.37%), and Communication Services (+1.20%). Main underperformers for the week were from subsectors such as Consumer Staples (-3.21%), Health Care (-2.86%), and Materials (-3.06%). 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 at -0.76%. driven by U.S 2-year and 10-year Treasury yields rising 30bps to 4.56% and 13bps to 3.80% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 25 bps to 3.09% while the CBOE Volatility Index (VIX) rose by 114 bps to 17.95%.
This coming week, US employment numbers on Friday will be released. The US jobs market is still running hot and the figure will be closely watched.
The global REIT market’s return varied across 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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