Summary
Economic forecasters have raised their estimates for global growth, buoyed by a more benign inflationary environment and rate cut optimism. However, given the ongoing conflict in Ukraine, the geopolitical events in the Middle East and the upcoming US presidential race, the year is unlikely to be plain sailing. We have tactically turned more positive on US and Singapore government bonds.
Market update
Equities: US and Global equities continued their rise in January, gaining 1.6% and 0.6%, respectively. The S&P 500 Index achieved a new record high as the “Magnificent Seven” stocks continued their rally. Japan equities outperformed with a 4.6% return, on the back of a weaker Japanese yen. However, the ebullient investor sentiment was slightly tempered at the end of the month when the Fed struck a less dovish tone at its January meeting. The Fed held interest rates steady, dashing hopes for a March cut. Over the month, growth stocks outperformed their value counterparts. Emerging Markets (“EM”) equities were down 4.6%. China was amongst the largest underperformers, falling 10.6%, despite the People’s Bank of China announcing new policy stimulus.
Fixed Income: US Treasury yields moved modestly higher in January, steepening in the process as the market reduced their Fed rate cut expectations. The 10-year yield rose 11 bps to 3.99% and the 30-year yield increased 19 bps to 4.22%. The Bloomberg Barclays Global Aggregate Index was down 1.38% amid higher yields. The ICE BofA US High Yield Constrained Index returned 0.02% on the back of positive technicals, and resilient economic data. The J.P. Morgan Asia Credit Index returned 0.27%, with the High Yield issuers (2.67%) outperforming their Investment Grade (-0.12%) counterparts.
Macro overview
Growth: Economic forecasters have raised their estimates for global growth, buoyed by a more benign inflationary environment and rate cut optimism. Hopes of a soft landing in the US are supported by better-than-expected economic data, declining inflation and the strong performance of risk assets since October 2023. The IMF lifted its 2024 global growth projection to 3.1% in January 2024 from 2.9% in October 2023. In addition, headline inflation is projected to decline, on account of the restrictive monetary policy and lower commodity prices. That said, given the ongoing conflict in Ukraine, coupled with the geopolitical events in the Middle East and the upcoming US presidential race, the year is unlikely to be plain sailing.
Inflation: January 2024’s US CPI data printed hotter than expected, with shelter prices accounting for much of the increase. This has further lowered the odds of a rate cut at the upcoming FOMC meeting in March. Much attention will be fixated on the upcoming US core CPE price index data (the Fed’s preferred measure of inflation) release on February 29. The Multi Asset Portfolio Solutions (MAPS) team still believes that the disinflation trend will continue to play out over the medium-term, especially as the labour market starts to cool.
Monetary Policy: Developed Market (DM) central banks are likely to be at the end of their respective rate-hiking cycles, as the Fed held its key rate steady in January for the fourth straight meeting. While the exact timing of the first Fed rate cut is still uncertain, the MAPS team believes that as inflationary pressures ease, global DM rates will trend lower over the medium-term. However, we remain cautious about the Fed prematurely declaring victory over price increases.
Asset class views
Source: Asset class views are as of the investment team’s most recent meeting in early February 2024, and should not be taken as a recommendation. The information provided herein is subject to change at the discretion of the Investment Manager without prior notice. 3m = 3-month view. 12m = 12-month view.
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