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Weekly Outlook

Weekly Outlook 04 Sep 2023 – 10 Sep 2023

Weekly Commentary: 04 Sep 2023 – 10 Sep 2023

Returns were positive last week as a decrease in longer-term rates provided a boost to growth shares.  The US added 187,000 jobs, and gains for the previous 2 months were revised lower by a combined 110,000. in August, according to the report released on Friday by the Labour Department. The unemployment rate rose to 3.8% from 3.5% in July as more Americans joined the workforce. Consumer spending jumped in July and price pressures remained subdued. Strong consumer has also boosted 3rd quarter growth projections to 4%, much faster than the 2nd quarter’s 2.1% pace. Investors are now hailing a possible Goldilocks scenario in which inflation comes under control without causing a recession. There are also possibilities for a pause in raising interest rates as Jerome Powell mentioned that the Fed would proceed carefully in any further move, signaling little urgency to raise rates at the central bank’s next meeting in September. However, he left the possibility to raise them later this year if the economy doesn’t slow enough to keep inflation declining.

Activity in China’s manufacturing sector contracted for a fifth straight month in August. This will add pressure on policymakers in China to shore up growth. PMI Index was 49.7% and non-manufacturing PMI, which covers services and industries such as agriculture and construction was 51%. The Chinese are making moves to provide support and they have cut the amount of foreign currency deposits that domestic banks must hold as reserves from 6% to 4%. It has also reduced the minimum down payments for homebuyers nationwide and encouraged lenders to lower rates on existing mortgages.

Stock returns were positive over the week as observed across the following 3 indices, the Dow Jones Industrial Average (+1.57%), S&P 500 Index (+2.55%), and NASDAQ Composite Index (+3.27%). Other notable key market indices that generated negative returns consist of MSCI World (+0.52%) & Hang Seng Index (+0.06%). All S&P 500 sectors registered mixed returns last week with notable sectors – Consumer Staples (-0.73%), Health Care ( -0.08%), and Energy (-1.37%) 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 -0.85%, driven by U.S 2-year and 10-year Treasury yields rising 13 bps to 5.07% and falling 3 bps to 4.22% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 7 bps to 2.61% while the CBOE Volatility Index (VIX) fell 162bps to 15.68%.

This coming week, India will be hosting the G20 Summit in New Delhi, and China President Xi Jinping will not be attending, with his Premier Li Qiang attending instead. Additionally, the EU and Japan will be releasing their Q2 GDP figures.

The global REITs market’s return was mostly in the mix across the numerous benchmarks. Thailand Property Fund & REITs Index (-0.44%), Hang Seng REIT Index (+0.07%), and FTSE EPRA Nareit UK REITs GBP (+1.63%) the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+0.18%) and most of its subsectors generated mixed weekly returns with Data Center REITS (+2.62%) and Real Estate Operating Companies REITs (+5.90%), 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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