Weekly Commentary: 10 July 2023 – 16 July 2023
The US created 209,000 jobs, below the expected figure of 225,000 jobs. This is the first time the numbers have fallen short of economists’ forecast of 14 months. However, the unemployment rate fell to 3.6% from 3.7% in May. Additionally, average hourly earnings also grew 4.4% in June from a year earlier, further pressuring the FED to raise rates. Rapid wage growth will contribute to stickier inflation.
China’s economic situation depicted a different picture as they teetered on the brink of deflation in June. The producer price index declined 5.4% yoy, accelerating from a drop of 4.6% in May and faster than the 5% consensus figure. China’s economic recovery remains shaky as global demand for goods has cooled, and the expected domestic rebound driven by consumer spending is not picking up the slack.
In a bid to stabilise the tension between US-China, Janet Yellen visited China last week and expressed hope for more regular channels of communication and China is willing to negotiate further on issues critical to the future of its economy.
Stock returns were negative over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-1.91%), S&P 500 Index (-1.11%), and NASDAQ Composite Index (-0.91%). Other notable key market indices that generated negative returns consist of MSCI World (-1.39%) & Strait Times Index (-2.07%). All S&P 500 sectors registered mixed returns last week with notable sectors – Healthcare (-2.85%), Materials (-2.01%), and Information Technology (-1.44%) 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 tightened to -0.87%. driven by U.S 2-year and 10-year Treasury yields rising 4 bps to 4.94% and rising 24 bps to 4.07% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 6 bps to 2.73% while the CBOE Volatility Index (VIX) rose 124 bps to 14.83%.
As we look towards the upcoming week, the Asia-Pacific markets exhibit a mixed outlook in anticipation of significant inflation reports. These reports include the release of the U.S. consumer price index on Wednesday and the producer price index on Thursday. On Friday, concerns over a potential interest rate hike by the U.S. Federal Reserve led to a decline in the U.S. markets, with all three major indexes experiencing a decrease.
The global REITs market’s return were mostly in the red across the numerous benchmarks. FTSE EPRA Nareit Emerging MALAYSIA Index (-3.06%), MSCI FTSE ST All-Share Real Estate Investment Trusts Index SGD (-1.68%) and S&P/ASX 200 A-REIT Index (-1.76%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-1.54%) and most of its subsectors generated positive weekly returns with Office REITS (+1.12%), 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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