Weekly Commentary: 11 Dec 2023 – 17 Dec 2023
Major US equity benchmarks closed at their highest level of the year last Friday. The US added 199000 jobs last month, slower than earlier in the year, and to exclude the effects of auto-worker strikes in recent months, November’s job gain would be roughly 169000, slightly cooler than 180000 in October. Healthcare and the government account for most of the recent hiring. With the recent job gains moderating and easing inflation, The Federal Reserve is poised to hold rates steady at next week’s meeting with the view of expecting to cut rates next year. Central banks around the world have also been holding rates steady; The Bank of Canada held its policy interest rate unchanged at 5%, citing higher rates are slowing price increases across the economy and they are also not thought of raising rates.
China faces a deepening deflation problem as the CPI Index dropped 0.5% in November from a year ago and analysts had been expecting a 0.1% decrease. The drop also marks a worsened condition compared to October, where the CPI fell 0.2% from a year earlier
Stock returns were positive over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.04%), S&P 500 Index (+0.24%), and NASDAQ Composite Index (+0.70%). Other notable key market indices that generated positive returns consist of the MSCI AC ASEAN Index (+0.01%) & MSCI World (+0.24%). All S&P 500 sectors registered positive returns last week with notable sectors – Communication Services (+1.41%), Information Technology (+0.74%), and Consumer Discretionary (+1.15%) 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 by -0.49%. driven by U.S 2-year and 10-year Treasury yields rising 20 bps to 4.74% and rising 5 bps to 4.25% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 14 bps to 2.55% while the CBOE Volatility Index (VIX) fell 28 bps to 12.35%.
This coming week, The US Federal Reserve, The European Central Bank, and the Bank of England will be making their interest rate call.
The global REITs market’s return was mostly mixed across the numerous benchmarks. FTSE EPRA Nareit France Index (+2.53%) and FTSE EPRA Nareit Canada Index (+2,03%) are the notable REITs that generated positive returns over the past week. Closer to home, the iEdge S-REIT Index (+2.19%) and all of its subsectors generated positive weekly returns with Office REITs (+5.03%) and Data Center REITs (+3.10%), 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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