Eastspring Investments
5 min read
Summary
Global economic activity in 2024 has been stronger than expected. Inflation data out of the US continues to be robust, buying the Fed more time to keep rates unchanged and let the restrictive policy do its work in time.
Market update
Equities: There was an increase in global risk aversion in April, as both the equity and fixed income markets generally sold off amid still hot US inflation and continued expectations that the central banks are unlikely to cut rates sooner than later. Against this backdrop, both the US and European equities fell by 4.1% and 1.7% respectively. Meanwhile Asia Pacific ex-Japan (“APAC”) markets returned 0.4% while China stood out, rising 6.6% amid a new set of policy easing measures discussed in the Politburo meeting. ASEAN markets underperformed both the broader Asian region and Emerging Markets during the month.
Fixed Income: In April, the yields on 2-year, 5-year and 10-year US Treasury notes soared by 42 bps, 50 bps and 48 bps to 5.04%, 4.72% and 4.68% respectively. Likewise, yields on Singapore government bonds climbed 14 bps, 36 bps and 34 bps to 3.50%, 3.40% and 3.45% respectively. Both government and credit bonds generally underperformed during the month amid the rising yield backdrop, reflecting the markets’ scaled back expectations of the Fed’s rate cut trajectory in 2024. Global bonds fell by 2.5%. Singapore bonds (7-10Y) posted -3.4%. The US high yield market returned -1.0%, outperforming its more interest rate sensitive US investment grade counterpart (-2.3%). The Asian USD bond market returned -1.2%.
Macro overview
Growth: The J.P. Morgan Global Manufacturing Purchasing Managers Index expanded for the third consecutive month in April with a reading of 50.3, suggesting that global manufacturing output growth continues to stabilise. Despite overall tighter monetary conditions across most advanced economies, global economic activity in 2024 has been stronger than expected, supported primarily by still resilient US growth. Looking ahead, US consumer spending, a key driver of US growth, will eventually slow on the back of dwindling excess pandemic savings, decelerating wage growth, and tighter lending standards.
Inflation: US Consumer Price Index (CPI) readings were generally robust in the first quarter of 2024. US core CPI, which excludes food and energy, experienced three consecutive monthly gains during the quarter. The strong core CPI reading can be partially attributed to higher rents, which accounts for roughly a third of the overall CPI basket. That said, we still believe that overall disinflationary trends will outweigh the recent “hot” inflation data. And as the US labour market cools further, wage growth, a key driver of inflation in our view, is expected to decelerate.
Monetary Policy: At the May FOMC meeting, the Fed Funds target rate was left unchanged at 5.25% to 5.5%, for the sixth consecutive time. Based on Chairman Powell’s comments, interest rates are likely to stay higher for longer to “let restrictive policy do its work”. Still, the emphasis remains on the timing of the first rate cut than the possibility of rate hikes. We believe that the strong reflation in the first quarter likely buys the Fed more time. Going forward, the Fed will likely rely on data to navigate the path towards lower rates.
Please download report for a discussion on key risks.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).
