Market index returns

Week to date since October 4, 2023 as of October 11, 2023

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.

• Close-calling and more stalling: Just following our review period, the minutes of the September Federal Open Market Committee (FOMC) meeting were released, revealing differences of opinion on the future path of interest rates: the current dot plot shows 12 members in favor of another quarter-point hike by year-end versus 7 in favor of staying pat. However, all members agreed they should “proceed carefully” and to make decisions based on incoming data. They also agreed to keep rates restrictive “for some time” until inflation is trending more sustainably toward the committee’s 2% target, though this has been balanced by more recent dovish-leaning comments by some committee members over the last week. Across the Atlantic, ECB meeting minutes characterized its decision to raise rates in September as a “close call”, but one that could punctuate the end of its hiking cycle, particularly in light of positive inflation developments last week.
• Food for Fed thought: Consumer Price Index (CPI) data released on Thursday revealed a 3.7% year-on-year reading for September, in line with August figures but marginally higher than expectations of 3.6%. Encouragingly, core inflation (ex food and fuel) decelerated from 4.3% in August to 4.1%. However, some stickiness was evident in the month-over-month print of 0.4%, which came in higher than anticipated - rents resumed their climb along with some recreational and leisure service costs. The reading added to concerns following the Producer Price Index (PPI) released the day prior, which clocked in at 2.2% on an annualized basis (+0.5% for the month), higher than expected and the largest increase since April. Meanwhile, consumer sentiment flopped during October according to preliminary readings from the University of Michigan survey, falling to 63 from 68 the month prior – the data suggests that consumers perceive current and future economic conditions as worsening and expect inflation to trend higher, which may impact consumer spending patterns that have thus far underscored economic resilience.
• Bullion is back: This week, the Gold price bounced off of the $1,820/oz level and headed sharply higher. Following our review period and as we write, prices are trading well north of $1,900/oz. This should come as little surprise to our regular readers given its safe-haven status and its inverse relationship with the U.S. dollar and real yields, which have headed lower in response to the recent conflict in Israel. For some time now, we have been highlighting other upside risks for Gold that remain intact, including heightened recessionary risks, an imminent end to the current rate hiking cycle, and robust central bank buying. 
• An old-fashioned West Texas mega-merger: Also during our week, oil and gas behemoth ExxonMobil announced it would merge with exploration and production company Pioneer Natural Resources (both are part of Natural Resource Equities) in an all-stock transaction valued at $59.5B. The merger represents a massive expansion of ExxonMobil’s footprint in the Permian Basin (the highest-producing oil field in the U.S.). The transaction could have important implications for production in the region where drilling operations are highly fragmented and thus could benefit from economies of scale and emissions reduction through consolidation. The transaction also represents an assertion by ExxonMobil that the transition to cleaner fuel sources will not happen overnight and that fossil fuels will continue to play an important role in meeting the world’s total energy demand for some time. Encouragingly, the company is building out a carbon capture business to reduce the environmental impact of greenhouse gases, though this is still in very early stages.  

• Big thanks to the big banks: Amidst all of the negative headline geopolitical news, we offer up some positivity in the form of the kick-off of third quarter earnings season, which began on Friday. First up were a batch of rosy reports from the financial sector, including the likes of JPMorgan Chase, CitiGroup, and Wells Fargo. Anxious investors seemed to draw some encouragement from a strong start by big banks, but it remains to be seen whether other companies across a range of sectors will be able to sustain the positive momentum. The silver lining is that micro-factors will likely come back into focus as analysts refocus on fundamentals and as stock-picking prowess becomes increasingly important.
• Implications for energy markets: Since the end of September, crude oil prices have sold off sharply and have since been whipsawed in the aftermath of the Hamas attack on Israel, rising sharply as we write on Friday. Speculation had abounded that a potential deal between Saudi Arabia, Israel, and the U.S. was in the works with Saudi Arabia reportedly considering removing voluntary cuts before the end of the year. However, the impact of the attack on the deal is now clear: discussions are now on hold and, along with them, any chance of an increase in Iranian oil exports. Were Israel and Iran to engage in direct conflict, the price of oil would rise significantly on disruption risk to overall oil and gas transportation through the region. Finally, we would note that natural gas prices have also gained - as natural gas storage is already at high levels and current weather models reflect temperatures near seasonal averages, recent price move is largely driven by short-term event risks, including the resumption of labor action in Australia and the potential risk to LNG exports from the Gulf region.
• GOP under pressure: As the American public and investors alike are becoming increasingly frustrated with governance in Washington, it’s still unclear where they should direct their anger as the U.S. House of Representatives carries on trying to select a leader. A short-lived nomination of Representative Steve Scalise was swiftly rendered moot on Thursday after he withdrew his name from consideration having failed to secure the necessary votes. Representative Jim Jordan has been put forth as the next viable alternative, but we’re doing the math and it still doesn’t add up, leaving us to wonder…what now? As we write, Republicans in Congress are holding another closed meeting to determine a way forward while mulling a temporary expansion of the powers given to the interim speaker to enable the passage of legislation. We’ll be staying tuned and reporting back next week.
• A peek at next week: The third week of October will usher in a slew of earnings reports, including more big banks (BofA, Goldman Sachs, Morgan Stanley), consumer goods, technology, and defense. Additionally, we’ll get another solid round of economic data, including U.S. retail sales, industrial production, and housing starts which could reveal incremental signs of economic weakness – here’s to hoping the U.S. consumer is still hanging tough. Finally, we expect more insight from various Fed speakers and within the Fed’s Beige Book report which is due out on October 18th.