Weekly Commentary: 08 Jan 2024 – 14 Jan 2024
Major US equity benchmarks were negative over the last week. The US economy added 216,000 jobs last month which was larger than November’s gain of 173,000, much better than consensus expectations. For the year 2023, the US job market added 2.7 million jobs, slowing down from the 4.8 million jobs added seen in 2022 but, overall a better gain than in years preceding the pandemic. Consensus expectations are that wage growth will witness continued cooling and pandemic-era savings to dwindle causing spending to go downwards in 2024 and in turn slow the labour market and economic growth.
Eurozone inflation was up slightly due to a base-effects-driven increase in energy in December but less than expectations. The CPI index rose 2.9%, up from 2.4% in November. Core inflation dipped to 3.4% in December from 3.6% IN November. The next rate decision meeting will be on Jan 25 and ECB’s Lagarde has noted that talks about interest rate cuts are still premature.
Stock returns were negative over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.56%), S&P 500 Index (-1.50%), and NASDAQ Composite Index (-3.23%). Other notable key market indices that generated negative returns consist of the MSCI AC ASEAN Index (-1.00%) & MSCI World (-1.52%). All S&P 500 sectors registered mixed returns last week with notable sectors – Information Technology(-4.04%), Consumer Discretionary (-3.45%), and Industrials (-2.15%) falling more than the rest of the sector.
The yield curve remains inverted as the 10Y-2Y US Treasury spread tightened for the week at -0.34%. driven by U.S 2-year and 10-year Treasury yields rising 28 bps to 4.39% and rising 17 bps to 4.05% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 26 bps to 2.50% while the CBOE Volatility Index (VIX) rose 150 bps to 13.95%.
This coming week, Taiwan will hold its presidential election on Saturday and earnings seasons will start with Wallstreet banks and other US financial heavyweights announcing their earnings for the past quarter.
The global REITs market’s return was mostly in the mix across the numerous benchmarks. Hang Seng REIT Index (-3.35%) and FTSE EPRA Nareit Germany Index (-5.41%) are the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-2.02%) and all of its subsectors generated negative weekly returns with Diversified REITs (-4.23%) and Office REITs (-2.64%), 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 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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