Market index returns

Week to date since May 08, 2024 as of May 15, 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.

• Inflation hot or not?: Potentially on the hot side, Producer Price Index (PPI) data came out this week that was widely higher than expected, with both PPI Final Demand and Core PPI (excludes food and energy) registering 0.5% month-on-month compared to estimates of  0.3% and 0.2%, respectively. However, as March’s print for both Final Demand and Core were both revised lower to -0.1% from 0.2%, even Fed Chair Powell stated, “I wouldn’t call it hot, I’d call it mixed” and again reiterated that the Fed’s next move was unlikely to be another rate hike. The following day, CPI was released, and while largely in line with expectations, it showed inflation was easing from the month prior. Headline and Core both came out at 0.3% month-on-month, down from 0.4% in March on both measures. Year-on-year prints, both in line with consensus, also showed sequential declines falling to 3.4% from 3.5% on headline and 3.6% from 3.8% on core. Equity markets reacted positively to the CPI news, while yields retreated, and investors priced in a 99% chance of a Fed cut (per Fed Funds futures) by the September meeting, with another cut expected in November or December. 
• Consumer fatigue: Retail sales data for April was released this week (the same day as CPI), which not only came in lower than expected but also saw March’s data revised lower. Overall sales in April showed no growth over March’s level, while March’s growth was lowered by 10 bps to 0.6%. Excluding automobiles, sales grew by 0.2% in April, in line with estimates, while March was revised lower by 20 bps to 0.9%. Excluding autos and gas, sales declined by 0.1% in April, and March was revised lower by 30 bps to 0.7%. Digging deeper into the Census Bureau’s report, there were areas where spending grew in April from March, such as at gasoline stations, where sales grew 3.1%, and at clothing & clothing accessories stores, which were up 1.5%. Falling the most were sales at non-store retailers, which declined by 1.2%. While signs of slowing consumer spending would generally be viewed as troublesome for the economy, investors viewed this release in conjunction with the CPI release as evidence that the Fed’s restrictive policies are working and that we’re one step closer to rate cuts. 
• U.S. slaps China with new tariffs: This week, the Biden administration hit China with a bevy of new or increased tariffs on a range of goods. The products include electrical vehicles (EVs), batteries, solar cells, semiconductors, certain industrial metals, such as aluminum and steel, and some medical equipment. The tariffs on steel and aluminum will jump from below 10% to 25% and will go into effect this year, while the rate on semiconductors will go from 25% to 50% and take place in 2025. One of the steepest tariff increases will be on EVs, which will go from 25% to 100% this year, as the Biden administration states, “A 100% tariff on EVs will protect American manufacturers from unfair trade practices.” Economists predict the new tariffs will impact ~$18 billion in imported goods, but whether this hurts China or the American consumer more is open for debate. China immediately denounced the new measures, vowed to take actions to protect their own interests, and in a Nietzsche-like manner, the Xinhua News Agency, the official press agency of the People’s Republic of China, stated, “What does not kill you makes you stronger.”

• Stars in their eyes (Real Estate): A Starwood-led consortium dangled a privatization carrot for Hong Kong-listed warehouse developer ESR Group. ESR is a real estate investment manager focused on sectors such as Logistics and Data Centers in the Asia Pacific region. Following a trading halt, ESR announced it had received a non-binding, conditional proposal from a Starwood Capital-led consortium for possible privatization. Indicative pricing and timeline have yet to be announced, but ESR backers, including the founders and major shareholder Warburg Pincus, are welcoming the proposal. The potential buyout likely hints at robust investor demand for Asia logistics assets, while ESR also has a sizeable Data Center pipeline in major cities. The proposal comes in the wake of a tumultuous period for ESR Group, after Starwood bought a 10% stake sold by one of the co-founders who had faced margin calls. Headwinds from higher rates and challenges in its China Logistics business have weighed heavily on ESR’s share price over the past two years, and even raised the prospect for it to be excluded from the MSCI Index due to low market size. The privatization proposal has thus come at an opportune time, given speculation that the offer could be in line with the average 20%-30% premium for Hong Kong take-private deals in the past. While dealmaking in Hong Kong has been lackluster, private transactions are on the rise.
• That’s a long flight delay (Infrastructure): Fraport AG has shut down the Salgado Filho International Airport in Porto Alegre, Brazil, until at least the end of September due to rainfall and flooding that made the airport inoperable, as southern Brazil is seeing some of the worst flooding in its history. The airport, which handles about 7.5 million passengers annually, closed in early May with almost 20 inches of standing water in its terminal and on the runways. With the area still flooded, Fraport has been unable to fully assess the damage but will invoke the force majeure clause in their concession agreement, which should allow them to recoup any repair costs, while they are also pursuing financial support from the local and federal governments. Fraport is also seeking to have commercial flights operated out of Canoas Air Base, a nearby military airbase, to provide some travel in and out of the area. So, the next time your flight gets delayed due to bad weather, be thankful it's not a four-month delay. 
• Want to buy a bunch of diamonds? (Natural Resources): A majority stake in De Beers, the world’s largest producer and distributor of diamonds, is likely coming to the market. Anglo American Plc, in an effort to fend off an acquisition bid from rival BHP Group, is looking to do a major restructuring, which includes selling or spinning off their majority stake in De Beers and exiting their business lines involved in the mining of platinum, coal, and nickel. This would leave Anglo American as a more streamlined and efficient company focused primarily on copper and iron ore mining. Recently, aggregate rough diamond production has been low due to higher-than-average levels of inventory, yet De Beers still produced 6.9 million carats in the first quarter of 2024 and generated $4.3 billion of revenue in 2023. Anglo American, which owns 85% of De Beers, with the remainder owned by the government of Botswana, is looking to sell its stake or spinoff De Beers in an IPO. While there is no word yet on potential pricing, the success of the offering may be the difference between Anglo remaining stand-alone or being acquired.