Market index returns

Week to date since January 17, 2024 as of January 24, 2024

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

• It’s a bird, it’s a plane…: No, it’s not Superman; it’s the U.S. economy, which has been…well…super! This week, the advance estimate of 4Q 2023 U.S. real GDP showed annualized growth of 3.3%, well above consensus estimates of 2.0%.We would note that export activity picked up meaningfully from the prior quarter, and within both exports and imports, the services segment grew faster than goods, potentially indicating a shift in global demand trends. Looking ahead, given the stronger-than-expected GDP growth in 2023, resilient consumers, a still robust labor market, and the Atlanta Fed’s GDPNow model estimating 3.0% real GDP growth in 1Q 2024, a soft landing in the U.S. is increasingly probable.
• Honey, I shrunk inflation: Is Fed Chairman Jerome Powell the new Rick Moranis? The recent release of Personal Consumption Expenditures (PCE) data showed headline PCE grew by 0.2% month-on-month in December, in line with expectations and maintaining its pace of 2.6% year-on-year growth. Core PCE, the Fed's preferred inflation gauge, also rose 0.2% month-on-month and fell to 2.9% year-on-year, its first sub 3% reading since March 2021. While the year-on-year number is still above target, Core PCE has risen at a rate of 1.9% on a 6-month SAAR and just 1.5% on a 3-month SAAR. Notably, inflation continues to decline even as retail sales and personal spending increase, with the latter growing by 0.7% in nominal terms and 0.5% in real terms for December. Expectations for the Fed’s next move were largely unchanged, with the futures market expecting the first cut potentially in March but more likely in May or June.  
• Gotta know when to hold ‘em: The Bank of Japan (BOJ), the Bank of Canada (BoC), and the European Central Bank (ECB), as expected, all opted to hold their policy benchmark rates unchanged this week. The BOJ kept its short-term rate at -0.1% and made no changes to its yield curve control program. Although the BOJ is keen to keep pundits guessing, expectations for a return to positive rates later this year remain intact. This would bring their policy rate out of negative territory for the first time since 2015. The next expected moves from the BoC and the ECB remain cuts, as both aggressively increased short-term rates over 2022 and 2023 to fight off stubborn inflation. While the timing of cuts remains in flux, ECB President Christine Lagarde stood by prior comments that cuts are likely to start in the summer, which is a little later than investors’ expectations of a cut in April. Next week will bring rate decisions in the U.S. and the UK, which are also both expected to hold rates steady. Lastly, if you were looking for a central bank that actually changed rates this week, we would point you to Turkey, where their central bank increased its key rate by 2.5% to 45% as they continue to suffer from high inflation (65% in December).
• Yuan is this going to end?: Bloomberg reported that Chinese authorities were considering a stock market stabilization package of up to 2 trillion yuan (~$280B USD) from offshore accounts to buy shares onshore via Hong Kong in order to stem the ceaseless domestic equity market weakness, though no official statement was released. In more concrete steps, the People’s Bank of China (PBOC) unexpectedly announced a 50 bps cut to banks’ reserve requirements, which should free up around 1 trillion yuan (~$140B USD) in liquidity. Property stocks jumped immediately following the announcement, but investors are skeptical of a sustained turnaround. Property markets remain in the doldrums as the CSI 300 Real Estate Index (a proxy for China’s listed real estate industry) is down over 40% for the trailing one year, even after the recent announcements and the relaxation of mortgage lending standards that occurred last fall. The ongoing deflationary bust will likely need more radical steps, with some strategists suggesting a substantial devaluation may be the only viable option.

• Home buying season starts early this year (Real Estate): Perhaps not for the individual buyer, but a deal announced this week will result in 38,000 single family homes changing hands in a single transaction. Blackstone-controlled entities announced they will acquire Tricon Residential (NYSE: TCN) in a $7.5B deal (of which $3.5B is equity). Blackstone, which prior to the announcement owned ~11% of TCN, is expected to leave the platform overseeing operations and development intact, as they will not only control the operating portfolio but also add ~2,500 houses under development, land to support nearly 21,000 additional homes in the U.S., and ~5,500 market-rate and affordable apartment units currently under construction in Canada. Blackstone is no stranger to the single-family rental (SFR) business, having been involved with the predecessor companies and the eventual IPO of Invitation Homes (NYSE: INVH) in 2017. While Blackstone completed the final disposition of its INVH shares in 2019, they have since acquired Home Partners of America (~17,000 homes) in 2021, and this new deal appears to be aimed at further building out its single-family housing platform again.
• Going back to Cali, Cali, Cali (Infrastructure): Port workers on the East Coast of the U.S. are considering a strike later this year, when their current six-year agreement expires at the end of September. With 45,000 East and Gulf Coast dockworkers represented by the International Longshoremen’s Association (ILA), a strike in the fall would be the first on the East Coast since 1977. In anticipation of a potential strike or work slowdown, some shippers are contemplating shifting volumes to the West Coast. This would be to the benefit of West Coast ports (e.g. Los Angeles, Long Beach, Seattle), which just last year reached a new labor contract at 29 West Coast ports with a six-year duration. Rail companies could also benefit, as final goods would still need to be moved to the middle of the country (or even back to the East Coast). This could also be a catalyst for a resurgence of West Coast warehouses (Industrial REITs), which have seen slowing fundamentals recently, albeit at the expense of East Coast warehouses. While there is still plenty of time for an agreement to be reached, we will be watching developments in the negotiations as the situation unfolds.
• Not acting Natural (gas) (Commodities): Natural gas, among the worst-performing commodities in 2023 with a ~65% decline, bounced off its December low, rebounding 26% through the first two trading weeks of 2024, catalyzed by the polar vortex that swept across the U.S. The inclement conditions resulted in disrupted service at a few of the LNG export terminals on the Gulf Coast. Nonetheless, the rally was short-lived as warmer weather returned to the U.S. (and parts of Europe); gas prices have fallen ~16% in the past two weeks. Natural Gas could be in for another rocky year as the European Commission expects the EU to end the winter with storage levels at 54%, much higher than the typical 30-40% seen before the Ukraine-Russia conflict. The EU is so well stocked at present that Natural Gas futures for delivery in Europe for February and March are now trading cheaper than deliveries in June and July, a reversal of typical seasonal patterns.