Weekly Commentary: 12 June 2023 – 18 June 2023
Major stock indices were up the last week as a slew of positive news makes investors worry less about the inflation impacts. The Fed agreed to hold interest rate steady after 10 consecutive increases but on the basis that the economy and inflation cools more. However, investors should not rest on their laurels as the Fed are prepared to raise rates next month. In Europe, The ECB raised rates by 0.25% and has indicated that it will continue to be higher. It is in stark contrast with the US’s and it has sent the Euro surging when the decision was announced. The ECB and the Fed are diverging in their policies. Underlying inflation in Eurozone is currently at 5.3%, not much below its March peak of 5.7%. This will be a drag on economic growth as high inflation leads to high interest rate, which will dampen consumer’s confidence.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+1.31%), S&P 500 Index (+2.62%), NASDAQ Composite Index (+3.26%). Other notable key market indices that generated positives returns consist of Hang Seng Index (+3.54%), MSCI World (+2.70%) & Strait Times Index (+2.29%). 3 S&P 500 sectors registered positive returns last week – Consumer Discretionary (+3.16%), Materials (+3.37%) and Information Technology (+4.45%). Main underperformers for the week were from subsectors such as Utilities (-1.35%), Financials (-1.23%) and Energy (-0.67%). 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 to -0.95%. driven by U.S 2-year and 10-year Treasury yields rising 12bps to 4.71% and rising 2bps to 3.76% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 8bps to 2.70% while the CBOE Volatility Index (VIX) has fallen 29 bps to 13.54%.
This coming week, key interest rates decisions are expected in China, London and Turkey. Another interesting event that is set to take place on Monday would be US Secretary of State Antony Blinken meeting with Chinese President Xi Jinping and there may be a thawing of relationship between US and China.
The global REIT market’s return was varied across the numerous benchmarks. S&P/ASX 200 A-REIT Index (-2.85%), FTSE EPRA Nareit UK REITs Index (-2.93%) and Hang Seng REIT Index (-3.85%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+3.70%) and all of its subsectors generated positive weekly returns with Real Estate Operating Companies (+5.61%), the notable sector that outperformed the rest 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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