Thought Of The Week
FED Meeting and US Equity Markets
The US Federal Reserve met on Wednesday this week and came up with the decision to commence tapering bond purchases and to hold interest rates steady. The tapering decision was on the back of an anticipated stronger economy. In light of the Federal Reserve’s outlook, small cap stocks jumped strongly as per the previous time the Federal Reserve announced the commencement of tapering. Bond yields also correspondingly rose with the tapering decision, with longer dated treasuries being more sensitive. It was also notable that Powell clarified that the rate of taper could change after December and would not rule out either increasing or decreasing the rate of asset purchases.
Despite the backdrop of higher inflation, Powell maintained that inflation was transitory and showed little urgency to raise interest rates. Powell also noted that progress was still needed to achieve “maximum employment” which led the Federal Reserve to hold interest rates steady. The Federal Reserve’s decision bode well with equities – with the NASDAQ and S&P 500 reaching record highs on Wednesday and the Russell 2000 and Dow Jones ending with a positive close near a record high on Wednesday.
G20 Summit and COP26 Outcomes
Over at the G20 Summit, climate issues were one of the main focus. Nations agreed to limit global warming to 1.5 degrees above pre-industrial levels and pledged for carbon neutrality in the mid century. With regard to climate financing for less developed countries, there were divergent views. Post G20, at the COP26, substantial progress was made on Thursday with 20 countries agreeing to end public financing for international fossil fuel projects by 2022. This agreement is the first of its kind with past agreements revolving around coal only.
At the G20 Summit, Leaders also pledged to support WHO’s vaccination goals of 40% vaccination rates by 2021 and 70% by mid 2022. This would be done by increasing vaccination supplies for developing countries. Lastly, leaders also noted that the economies were still in recovery and dismissed a quick removal of economic stimulus.
Earlier in the REIT earnings season, we noted good performance in a few major REITs. Mapletree Logistics Trust and Mapletree Industrial Trust posted a DPU increase of 5.7% and 11.9% respectively while Ascendas REIT posted a slightly higher occupancy rate. This week, Lendlease REIT posted steady occupancy rates driven by high tenant retention rates of 90% at its [email protected] property. Parkway REIT despite headwinds, posted a slight DPU increase of 0.8% this week. For Singapore REITs which solely focus on overseas properties, Prime REIT and Elite Commercial Trust posted DPU increases this week while Manulife US REIT posted better leasing activity. The overall better financial and operational performance of Singapore REITs have fueled a recent REIT upturn.
Chart Of The Week
Important Information and Disclosure
Equity Price Level and Returns: All returns represent the total return for stated period. MSCI ACWI: Global equity index provided by Morgan Stanley Capital International (MSCI). S&P 500: Market capitalization index of U.S stocks provided by Standard & Poor’s (S&P). Dow Jones: Price-weighted index of U.S stocks provided by S&P. NASDAQ: Market capitalization index of U.S stocks provided by NASDAQ. Stoxx 600: Market capitalization index of stocks listed in European region. MSCI Asia Ex Japan: Asia excluding Japan equity index provided by MSCI. MSCI EM: Emerging markets equity index provided by MSCI. SSE: Capitalization weighted index of all A-shares and B-shares listed on Shanghai Stock Exchange. STI: Market capitalization index of stocks listed on Singapore Exchange. SREITLSP: Market capitalization index of the most liquid real estate investment trusts in Singapore.
Fixed Income Yield and Returns: All returns represent total
return for stated period. Global Aggregate: Global investment grade debt from both developed and emerging markets issuers. U.S. Aggregate, U.S Corporate, High Yield provided by Bloomberg Barclays Indices, ICE Data Services & WSJ. SBIF: ABF Singapore bond index fund provided by Nikko AM.
Key Interest Rates: 2-Year U.S Treasuries, 10 Year Treasuries, Bloomberg. 1-month, 3-month SIBOR: Singapore Interbank Offered Rates provided by Association of Banks in Singapore (ABS). Oil (WTI): Global oil benchmark, Bloomberg. Gold: Gold Spot USD/Oz, Bloomberg. DXY Index: U.S. Dollar Index, Bloomberg. VIX: Expectation of volatility based on S&P index options provided by Chicago Board Options Exchange (CBOE).
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