Monthly Market Review

Economics

Lim Yuin, Chief Investment Strategist

Equities

Source: All data are sourced from Lion Global Investors and Bloomberg as at 31 July 2023 (5pm SGT) unless otherwise stated. *All figures stated in US Dollars.

Fixed Income

Source: All data are sourced from Lion Global Investors and Bloomberg as at 31 July 2023 (5pm SGT) unless otherwise stated. *All figures stated in US Dollars.

Macro & Markets

US July Federal Open Market Committee (FOMC)

After a pause in June, the Federal Reserve hiked interest rates by another 25 basis points, bringing the Fed funds rate to a range of 5.25% to 5.5%, a peak in 22 years. Although overall inflation rate has begun to soften, it is still above Fed’s target of 2%. Furthermore, labour market remains resilient, with unemployment rate still at a low of 3.6%. Chairman Jerome Powell has opened the possibility to another hike this year, dependent on upcoming economic data.

China’s Politburo meeting

Measures aimed at supporting the private economy were released, so as to restore investors’ confidence in the private sector. Another noteworthy point is the change in tone regarding China’s embattled property market, with the omission of the statement “housing is for living, not for speculation”. While markets reacted positively after the meeting, optimism is subdued as investors await more concrete details of policy execution.

Movers & Shakers

Bank of Japan’s surprise move

Bank of Japan surprised markets by tweaking the yield curve control (YCC) policy to be more flexible, allowing 10-year yields to rise over 0.5%. The YCC has been a cornerstone of its ultra-loose monetary policy. The Central Bank stated that this would allow more “nimble” response to market changes including rising inflation. Headline inflation in Japan hit 3.3% in June 2023. On the back of this, benchmark bond yields soared to the highest level in 9 years as Yen jumped and stocks fell.

Start of US Tech earnings season

US Tech earnings reported so far have been a mixed bag. Microsoft’s shares fell after the company guided for higher-than-expected Capex spend and AI-related investments. While the buzz around the Artificial Intelligence (AI) theme is still very much intact, investors are starting to question when the investments will pay off and how much optimism has been priced in.

Asian bonds drawing foreign inflows

As we approach the end of Fed tightening cycle, Asian bonds saw net foreign inflows in a four-month streak in June. Markets are expecting Asian central banks to shift into a more accommodative monetary stance in the foreseeable future.

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