Weekly Commentary: 14 Aug 2023 – 20 Aug 2023
Returns were mixed last week as measured by the several indices. In the US, price pressures continue to cool as annual inflation was reported as 3.2% in July, up from 3% in June. Annual core inflation decreased to 4.7% in July from June’s 4.8%. The new numbers have lowered 3-month annualized rate of core inflation to 3.1%, the lowest reading in 2 years, from 5% in May. The FED may pause hiking of rates if inflation continues to cool down and recession fears are receding, with soft landing taking hold of the narrative.
While US are battling with inflation, China slid into deflation In July, dropping 0.3% in July from a year earlier. Both consumer and producer prices registered contracts with Producer prices falling for a 10th consecutive month, dropping 4.4% in July from a year earlier. The weak economic data from China will perhaps prompt the People’s Bank of China to add more monetary stimulus. Deflation in China will have global spillovers effect and helping inflation in US and Europe to moderate. China responded to previous deflationary periods with forceful monetary easing and large fiscal stimulus, and they have vowed support for a ailing housing market.
Stock returns were negative over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.69%), S&P 500 Index (-0.27%), NASDAQ Composite Index (-1.87%). Other notable key market indices that generated negative returns consist of MSCI World (-0.41%) & Hang Seng Index (-2.27%). All S&P 500 sectors registered mixed returns last week with notable sectors – Information Technology (-2.82%), Consumer Discretionary ( -0.96%) and Materials ( -0.98%) falling more than the rest of the sector. For 2022, 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 -0.74%. driven by U.S 2-year and 10-year Treasury yields rising 15 bps to 4.92% and rising 15 bps to 4.18% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 11 bps to 2.54% while the CBOE Volatility Index (VIX) has fallen 226bps to 14.84%.
This coming week, UK will release inflation data, house price index and monthly employment figures. Poland, India and Canada will release their CPI data. Investors will be looking at China’s data on national retail sales, industrial output and foreign direct investment on Tuesday as the world second largest economy grapples with deflation.
The global REITs market’s return were mostly in the mixed across the numerous benchmarks. Thailand Property Fund & REITs Index (-1.05%), Hang Seng REIT Index (-1.61%) and FTSE EPRA Nareit UK REITs GBP (-1.57%) the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-0.04%) and most of its subsectors generated negative weekly returns with Data Center REITs (+0.56%) and Industrial REITs (0.81%), 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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