Weekly Commentary: 17 July 2023 – 23 July 2023
Markets were up across the board last week as investors were more optimistic about the economic situation as inflation eases and the labour market are still going strong. CPI was 3% in June, down from a peak of 9.1% last year, according to the data released last week. However, with the still-strong labour market and average hourly wages rising 1.2% in June, inflation will prove to be stickier. Federal Reserve Bank of St. Louis President James Bullard has also resigned as the bank’s leader, and he was one of the most vocal advocates for stronger moves to fight inflation, this means that the FED may perhaps be less hawkish.
Singapore economy grew 0.7% in the second quarter, avoiding a technical recession. The manufacturing sector contracted by 7.5% in the second quarter, and it was a sharp fall, from the 5.3% contraction in the previous quarter. This was similar to China’s export situation as Chinese exports fell at their steepest annual pace of 12.4% in June. Export-orientated countries are suffering because of weak global demand due to rampant inflation in Europe and US. China’s situation looks dire as major economies are bringing back manufacturing and investment back home and consumption are not taking the slack due to a weak labour market and downturn in their real-estate market.
Stock returns were positive over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+2.29%), S&P 500 Index (+2.44%), NASDAQ Composite Index (+3.32%). Other notable key market indices that generated negative returns consist of MSCI World (+3.22%) & Strait Times Index (+3.48%). All S&P 500 sectors registered mixed returns last week with notable sectors – Information Technology (+2.81%), Communication Services (+3.36%) and Consumer Discretionary (+3.31%) rising 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 -0.93% driven by U.S 2-year and 10-year Treasury yields falling 20 bps to 4.75% and falling 24bps to 3.83% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 18bps to 2.73% while the CBOE Volatility Index (VIX) has fallen 102 bps to 13.81%.
This coming week, Tuesday, Canada will be releasing their June CPI figures and US will be releasing their retail sales and industrial production figures. UK’s June CPI figure and UK house price index will also be publishing their figures.The global REITs market’s return were mostly in the green across the numerous benchmarks. S&P/ASX 200 A-REIT Index (+5.08%), FTSE EPRA Nareit Germany Index (+8.43%) and FTSE EPRA Nareit France Index (+5.61%) were the notable REITs that generated positive returns over the past week. Closer to home, the iEdge S-REIT Index (+3.82%) and most of its subsectors generated positive weekly returns with Industrial REITS (+4.67%), 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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