Weekly Commentary: 16 Oct 2023 – 22 Oct 2023
Major US equity benchmarks were mixed for the past week Inflation seems to be abating. In the UK, house prices have fallen by 2.8% in nominal terms since their peak in March 2022 however, if you measure it in real terms, the figure shoots up to 13.4%. In some regions and nations of the UK, house prices have yet to recover to 2007 levels after adjusting for inflation. Grocery inflation has also fallen for 7th consecutive month. Grocery prices rose by an annual rate of 11%, down from 12.2% the previous month and the lowest since July 2022. Food inflation was one of the drivers of rising prices in the UK, and the fall in prices suggests that cost of living pressures are beginning to ease. Recession fears are abating, and economists think that the days of raising interest rates are gone and inflation will continue to abate. Strong labour market resilience and rising real incomes support their thesis coupled with declining inflation.
In China, even though its economy is in the doldrums, its movie theatres enjoyed a record-breaking few months as box office receipts totaled 23.44 billion yuan between June and September, the highest amount for that period in history. During the traditional high season between June and August, it soared to a record 20.6 billion yuan. The movie industry usually does well in tough economic times as moviegoers can escape reality with just a small sum of money compared to cars and houses.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.79%), S&P 500 Index (+0.47%), and NASDAQ Composite Index (-0.18%). Other notable key market indices that generated positive returns consist of the MSCI AC ASEAN Index (+1.05%) & Hang Seng Index (+1.87%). All S&P 500 sectors registered mixed returns last week with notable sectors – Utilities (+3.61%), Energy (+4.51%), and Real Estate (+2.37%) 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 -0.41%. driven by U.S 2-year and 10-year Treasury yields falling 2 bps to 5.06% and falling 15 bps to 4.65% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 9 bps to 2.88% while the CBOE Volatility Index (VIX) rose 187 bps to 19.32%.
This coming week, the UK’s monthly unemployment rate and average weekly earnings, September CPI, PPI, and retail price index (RPI) inflation rate data, and the US’s September retail sales figures will be released.
The global REITs market’s returns were mostly in the red across the numerous benchmarks. Hang Seng REIT Index (-1.03%) and FTSE EPRA Nareit France Index (-1.17%) are the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+1.48 %) and most of its subsectors generated positive weekly returns with Real Estate Operating Companies (+2.88%) and Industrial REITs (+1.79%), the notable sector that underperformed 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 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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