Weekly Commentary: 03 July 2023 – 09 July 2023
Last week’s headline news involved the death of Nahel M, who was shot point-blank by police after failing to stop for a traffic check last Tuesday in near Paris. The death resulted in protests across France, with riots going on for the last five days. Images surfaced showing individuals torching vehicles and ascending buildings with broken windows, as protestors faced intense confrontations with riot police. The disturbance spurred French President Emmanuel Macron into crisis management mode. He hastily convened a meeting with his ministers, focusing his efforts on mending societal rifts and unifying the nation during his second tenure. Advocates argue that Nahel’s ethnicity played a part in his death, revealing underlying conflicts regarding perceived bias by law enforcement against marginalized groups in France. The unrest has amassed roughly €100 million worth of damages so far, and has affected tourism in the European region.
China’s manufacturing sector contracted for a third straight month in June and the non-manufacturing sector weakened too. New orders were falling for both and employment declined across both broad sectors. China’s economic recovery remains shaky due to global demand for goods cooling and high inflation elsewhere in the world. China’s PMI index rose slightly to 49 in June from 48.8 in May. Sub-index on employment shrank to 48.2 in June, the fourth contraction in 4 months. Services sector activities have also softened in June to 52.8 from 53.8 in May.
Over the weekend, Tesla announced its vehicle production and delivery statistics for the second quarter, which exceeded predictions made by analysts. On Sunday, the company reported a total of 466,140 deliveries and 479,700 vehicles produced. This indicates an 83% increase in deliveries compared to the same period last year, demonstrating the electric vehicle manufacturer’s capacity to boost production at its Texas assembly plant. This is the fifth quarter in a row where Tesla’s production numbers have outpaced deliveries.
Stock returns were positive over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+2.02%), S&P 500 Index (+2.36%), NASDAQ Composite Index (+2.20%). Other notable key market indices that generated positive returns consist of MSCI World (+2.25%) & Strait Times Index (+0.45%). All S&P 500 sectors registered mixed returns last week with notable sectors – Real Estate (+5.14%), Materials (+4.04%) and Energy (+4.82%) dropping more than the rest of the sector. 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 -1.07%. driven by U.S 2-year and 10-year Treasury yields rising 16 bps to 4.91% and rising 10bps to 3.83% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 24bps to 2.94% while the CBOE Volatility Index (VIX) has rose 15 bps to 13.59%.
We have a packed week ahead of us as on Wednesday, investors will be keenly scrutinizing the minutes from the Federal Open Market Committee’s meeting in June. They will be seeking insights into the Federal Reserve’s future actions. The central bank of Malaysia is set to announce its decision on interest rates this Thursday. Based on a Reuters poll of economists, it is anticipated that the central bank will maintain its current rates, following a 25 basis point increase in its benchmark rate this past May.
The global REIT market’s return were mostly in the red across the numerous benchmarks. FTSE EPRA Nareit Canada Index (+5.86%), MSCI US REIT Index (+5.28%) and S&P/ASX 200 A-REIT Index (+4.34%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+1.40%) and most of its subsectors generated positive weekly returns with Data Center REITS (+3.58%), 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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