Multi-Asset Weekly: Sticky Inflation Puts Spotlight on Fed Meeting
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Chief Investment Office18 Mar 2024
  • Equities: Strong PPI print hints at possibility of delayed rate cuts
  • Credit: Long-term yields bear upside risks, while short-term yields are expected to converge lower
  • FX: DXY to resume decline after best weekly rebound in eight weeks; stiff resistance at 103.4-103.7
  • Rates: US Treasury yields biased higher amid mix of reasonably strong data and firm sentiment
  • The Week Ahead: Keep a lookout for US FOMC Rate Decision; Japan Industrial Production Number
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Equities: Inflation Jitters Ahead of FOMC Meeting

Global equities see resurgence in inflation jitters. US equity markets slid last Thursday after US PPI, which measures the input cost for manufacturers and service providers, came in higher-than-expected. On a m/m basis headline PPI gained 0.6%, while core PPI, which excludes food and energy prices, increased by 0.3%. Both measures were higher than economist projections of 0.3% and 0.2% respectively. This reading and buoyant CPI data for February have reignited inflation jitters for market participants and will likely be key points of discussion in the upcoming two-day Federal Open Market Committee (FOMC) meeting, which starts on Tuesday (19 Mar).

The meeting will provide crucial information on some key questions on the minds of investors, such as whether yields have room to trend higher, and how much downside there is for markets if they do indeed rise. The outcome remains to be seen as market impact has thus far been fairly muted, with major global indices trading mixed last week; US and Japan were down while Asia ex-Japan and Europe logged modest gains, indicating markets are generally in a wait-and-see mode.

Topic in focus: US Equities – A ‘healthy’ pullback for Tech. While headlines have been dominated by the meteoric performance of the Magnificent Seven, recent data indicates a shift towards a broadening of the market rally. In January, the Magnificent Seven accounted for approximately 41% of the S&P 500 gains, a staggering figure that underscores their dominance. This dominance continued in February, hitting 48% before reporting a -9% contribution to the S&P 500 performance for the first two weeks of March (as of 15 Mar 2024). This change reflects the broader trend in the equity market, where a broader array of companies are now participating in the market rally while the Magnificent 7 takes a breather as their dominance eases.

Looking at the YTD performance sectorial breakdown, it is notable that although technology-related sectors (IT and Communication Services) continue to lead the pack, other sectors such as Energy and Financials have driven most of the gains during the first two weeks of March. We continue to remain overweight US equities and the Technology sector despite the short-term pullback.

Figure 1: Signs of non-tech sectors catching up


Source: Bloomberg, DBS


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