Market index returns

Week to date since April 10, 2024 as of April 17, 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.

• Impervious U.S. consumer?:  Retail sales reported by the U.S. Census Bureau this week showed consumers are confident and ready to spend, as results for March were better than estimated and February’s data was widely revised higher. The advance estimate of retail sales in March grew 0.7% month-on-month ahead of 0.4% estimates, while February’s results were lifted by 30 bps to 0.9%. Excluding automobiles, March sales grew by 1.1% ahead of 0.5% estimates, and February was again revised 30 bps higher to 0.6%. Excluding automobiles and gas showed a similar story, growing by 1.0%, exceeding expectations, and with February revised higher too. The strongest growth came from non-store retailers, which grew 2.7% from the month prior (and 11.3% from the year ago period). Following these strong results, the Atlanta Fed’s GDPNow forecast for 1Q jumped almost 40 bps to 2.8% and has continued to climb, with the most recent reading at 2.9%.
• China’s rebalancing act:  A host of economic data was released from China over the past week. First, data showed that deflation could remain an issue, with PPI falling 2.8% year-on-year in March while CPI grew just 0.1% for the same period. Trade data was concerning too, as exports fell 7.5% year-on-year and imports dropped 1.9%. However, GDP growth for 1Q 24 exceeded expectations at 5.3%, accelerating from the last quarter of 2023 and putting them on track to meet their full year target for 2024 of ~5%. But back in the category of worrisome, industrial production and retail sales failed to meet expectations, growing 4.5% (vs. est. of 6.0%) and 3.1% (vs. est. of 4.8%), respectively, on an annualized basis for March. Lastly, the urban unemployment rate dropped 10 bps to 5.2% in March, but the youth unemployment rate, which we take with a grain of salt (as we do for all China reported data), remains stubbornly high at 15.3%, the same as it was in February.
• Global economy hits tortoise stage: “Steady but Slow” was the title of the latest World Economic Outlook from the IMF, and as we all recall from Aesop’s fable, it was the tortoise that won the race against the much faster but overconfident hare. In the April update, global economic growth was forecast to be 3.2% for 2024, up 10 bps from their last estimate, and coincidently, the same as 2023 and their forecast for 2025 (which was left unchanged). The IMF flagged concerns about persistent inflation and geopolitical risks and also noted that increased borrowing costs and the withdrawal of fiscal support in some areas could weigh on growth in the short-term. In individual countries and regions, the forecast for growth in the U.S. was lifted to 2.7% (up 60 bps) for 2024 and to 1.9% (up 20 bps) for 2025, while the eurozone was reduced to 0.8% (down 10 bps) and 1.5% (down 20 bps) for the same time periods. Interestingly, Russia’s growth was raised to 3.2% (up 60 bps) for 2024 and 1.8% (up 70 bps) for 2025 given continuing exports of crude and other commodities, along with the ramp up in military production, indicating that European and U.S. sanctions have yet to sting. 

• Land of the Rising Property Developer (Real Estate): Corporate reform, a falling yen, foreign flows, and a positive economic cycle characterized by wage growth and mild inflation have propelled the Nikkei 225 to levels not seen since the release of Nintendo’s Game Boy (1989). During this strong rally, real estate developers were among the biggest winners from the Bank of Japan’s (BoJ) expected move to end negative rates, with investors focusing on the dovish tone from the central bank. The recovery in the office market, inflation expectations, and shareholder return initiatives have also helped propel the real estate majors sharply higher. Under pressure from activists and the Tokyo stock exchange, corporate reform within the sector has been strong. We highlight Mitsubishi Estate's long-term plan review, Mitsui Fudosan's new medium-term plan, Sumitomo Realty & Development’s improved governance, and Nomura Real Estate Holdings' measures to enhance shareholder returns. These initiatives have been well received by the market. Mitsubishi Estate has surged almost 50% year-to-date (through April 16, 2024), aided by a strong result and positive sentiment as the company looks towards setting a total payout ratio target and share buybacks as part of its Long-Term Management Plan 2030. Not to be outdone, fellow real estate major Mitsui Fudosan is up ~42% over the same period. In February, U.S. activist investment firm Elliot Management urged Mitsui to buyback ¥1 trillion of its shares. Just two months later, Mitsui announced plans for a share buyback, a compelling ROE target, and a favorable payout ratio. 
• Germany’s doppelt hält besser with coal to end (Infrastructure): While literally translating to “two is better,” doppelt hält besser can be used colloquially to mean “better safe than sorry,” which was Germany’s motivating factor in 2022 to keep coal-fired power plants running following the Russian invasion of Ukraine. Germany has a stated goal to end the use of coal at power plants by 2030 but left 15 online that were scheduled to shut as uncertainty arose around the continued delivery of cheap natural gas from Russia. Germany has since built up its LNG import terminal network and relies less on Russian gas delivered via pipeline, though the origin of natural gas can be difficult to ascertain given its global commodity status. Additionally, natural gas prices have fallen dramatically, and the use of renewable energies has increased, which has led to a fall in the cost of producing electricity. With new sources of power in place, these 15 coal power plants have been retired, with the German Economy Minister, Robert Habeck, stating these plants were “neither necessary nor economical.“ This trend of replacing coal with natural gas or renewable sources of energy is one we expect to continue across the globe and is part of our energy transition thesis.
• Not on my exchange (Commodities): This week, the UK and U.S. governments sent notices to the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME) prohibiting them from accepting aluminum, copper, and nickel produced in Russia after April 13th, as well as prohibiting importation of the same metals into either country. Existing stocks of the metals can still be used at the exchanges, and trading outside of these exchanges is still allowed, but nonetheless, prices on these three metals soared following the announcement. However, prices quickly settled as traders have already found a way around the new sanctions by using intermediaries or trading on alternative exchanges. For instance, the Shanghai Futures Exchange (SHFE) has no restrictions on these metals and has actually increased metal imports from Russia since 2022; additionally, Russian miners can sell raw material into third-party countries where it is smelted and then sent to the LME or CME. We will be watching carefully to see if the U.S. and UK look to crack down on these workarounds or implement additional measures with more bite.