Weekly Commentary: 23 Oct 2023 – 29 Oct 2023
Major US equity benchmarks were negative for the past week. The two-year treasury yield rose 0.09% to 5.2%, the highest since 2006 and the sell-off came due to a stronger-than-expected US retail sales data released last week. The ten-year treasury yield rose as much as 0.15% to 4.85%, near a 16-year high. The market has now priced approximately 50% of a further FED rate rise by the end of the year, compared with 37% earlier in the week.
While US consumers are going strong, UK consumers’ confidence seems to be gloomier. The GfK consumer confidence index fell from -21 to -30 in October. UK’s economy has taken a hit and households are hit by higher mortgage payments a record rate of increase in residential rental costs. Prices at the fuel pump are not helping too with the average litre of petrol costing 156pence, up from 146 pence in June. Wage growth also slowed marginally in the 3 months to August however, inflation is still stuck at 6.7%.
China’s 3rd quarter GDP grew 4.9%, beating consensus but was lower than the 2nd quarter growth of 6.3%. They seem poised to meet its 5% target for 2023 overall. There was growth in industrial output, retail sales, and fixed asset investment however, they are still facing challenges in the property market.
Stock returns were negative over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-1.57%), S&P 500 Index (-2.38%), and NASDAQ Composite Index (-3.16%). Other notable key market indices that generated negative returns consist of the MSCI AC ASEAN Index (-3.10%) & Hang Seng Index (-3.59%). All S&P 500 sectors registered mixed returns last week with notable sectors – Consumer Discretionary (-4.45%), Information Technology (-3.13%), and Real Estate (-4.64%) 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 tightened to -0.14%. driven by U.S 2-year and 10-year Treasury yields rising 6 bps to 5.11% and rising 35 bps to 4.96% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 17 bps to 3.05% while the CBOE Volatility Index (VIX) rose 239 bps to 21.71%.
This coming week, the EU will be releasing their Eurozone October consumer confidence index. EU, Russia, Israel and Canada will be announcing their interest rate decision.
The global REITs market’s returns were mostly in the red across the numerous benchmarks. Hang Seng REIT Index (-3.69%) and FTSE EPRA Nareit Germany Index (-8.84%) are the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-5.53%) and all of its subsectors generated negative weekly returns with Data Center REITs (-14.01%) and Industrial REITs (-5.78%), the notable sector 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 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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