Weekly Commentary: 06 Nov 2023 – 12 Nov 2023
Major US equity benchmarks were positive for the past week. The US Federal Reserve, ECB and BOE decided to hold rates steady last week. The US held interest rates at 5.25% – 5.5% last Wednesday and the stance remain flexible as the door to raising rates remain open due to a robust labour market and consumer spending that led to faster than expected GDP growth in the 3th quarter.
In Europe, inflation fell to 2.9% in October, its lowest for more than two years compared with 4.3% in September. Unemployment has also increased to 6.5% as the environment of high interest rates and a stagnating economy start to affect the job market. The combined GDP of the eurozone’s 20 members fell 0.4% in 3Q. Weakness in the eurozone’s economy have got spill-over effects as its imports from China in the first eight months were down 15.4% yoy while imports from UK were down 13.7% yoy.
UK interest rates are at their highest since the financial crisis as inflation stands at 6.7%. The Central Bank also anticipates that output will remain stagnant through 2024. Risks to the inflation outlook remained skewed to the upside as the escalation of the Israel – Gaza conflict could further push up energy prices.
Stock returns were negative over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+5.07%), S&P 500 Index (+5.88%), NASDAQ Composite Index (+6.62%). Other notable key market indices that generated positive returns consist of MSCI AC ASEAN Index (+3.34%) & MSCI World (+5.58%). All S&P 500 sectors registered positive returns last week with notable sectors – Consumer Discretionary (+7.23%%), Real Estate (+8.57%) and Financials (+7.45%) 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 for the week of -0.28%. driven by U.S 2-year and 10-year Treasury yields falling 14 bps to 4.86% and falling 25 bps to 4.58% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 36 bps to 2.70% while the CBOE Volatility Index (VIX) fell 636 bps to 14.91%.
This coming week, Germany will release its monthly industrial production figures, Australia will hold central bank-rate-setting meeting and China will release October’s trade balance figures. China will also release its CPI and PPI inflation rate data.The global REITs market’s return were mostly in the red across the numerous benchmarks. FTSE EPRA Nareit Germany Index (+18.57%) and FTSE EPRA Nareit Canada Index (+10.85%) are the notable REITs that generated positive returns over the past week. Closer to home, the iEdge S-REIT Index (+5.89%) and all of its subsectors generated negative weekly returns with Real Estate Operating Companies (+7.65%) and Industrial REITs (+7.22%), 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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