Market index returns

Week to date since February 21, 2024 as of February 28, 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.

• No surprise is a pleasant surprise: Personal Consumption Expenditures (PCE) data for January was released, and while investors were expecting the worst following hotter-than-expected CPI and PPI prints earlier this month, results were in line with consensus across the board. Headline PCE came in at 0.3% month-on-month (above December’s 0.2%) and 2.4% year-on-year (lower than December’s 2.6%). Core PCE (which excludes food & energy), the U.S. Federal Reserve’s (Fed’s) preferred inflation gauge, was 0.4% month-on-month (above December’s 0.2%) and 2.8% year-on-year (lower than December’s 2.9%). Following the release, equity markets reacted favorably, and longer-term bond yields retreated. While the Fed insists they remain data dependent on any future policy changes (and have already ruled out a March cut), this was the last look at PCE ahead of the March meeting, though February’s CPI and PPI will be available. While investors’ expectations (as measured by Fed Funds futures) on the timing of the first rate cut were slightly increased for May and June following the PCE release, we remind readers that the total number of expected cuts in 2024 has been reduced from six at the start of the year to now just three.
• Lagarde-dly optimistic:  After an unexpected pickup in December, UK CPI for January came in lower-than-expected across the board at -0.6% month-on-month (well below December’s 0.4%), 4.0% year-on-year at (same as December), and core CPI at 5.1% (same as December). The most positive aspect was that food inflation was negative on a monthly basis for the first time since September 2021. In the eurozone, CPI for February was up 0.6% month-on-month (inline but well above January’s -0.4%), while up 2.6% on a year-on-year basis (above an expected 2.5% but below January’s 2.8%). Year-on-year core CPI was higher than anticipated at 3.1% but did slow sequentially from 3.3%. In individual countries, early estimates of inflation in Germany showed inflation at 0.4% month-on-month (up from 0.2% in January) and 2.5% year-on-year (down from 2.9%), with both new prints lower than expected. In France, inflation was a bit higher than expected at 2.9% year-on-year, and Spain saw year-on-year CPI grow at 2.8%, in line with expectations; both France and Spain decelerated from January. Similar to the Fed, the Bank of England (BOE) and the European Central Bank (ECB) are in a wait and observe mode before determining when to ease benchmark policy rates, though per overnight index swaps, the most likely candidates are June or July for the ECB and August in the case of the BOE.
• Slow your roll: The second print of U.S. GDP for 4Q 23 was released this week at 3.2%, down 10 bps from the initial estimate and slowing from 4.9% in the third quarter of last year. U.S. economic growth is expected to slow further this year, with the Atlanta Fed’s GDP. Now forecast for the first quarter tweaked down a hair to below 3.0%, which would still represent healthy economic conditions. The question is what happens in subsequent quarters. The International Monetary Fund’s (IMF’s) latest forecast has U.S. GDP growing by only 2.1% for the full year and slowing further to 1.7% in 2025, indicating material slowing later this year. The Fed’s own projection for 2024 (published in December) was even lower at just 1.4%, but we expect this could be revised higher at their March meeting. Still, the U.S. growth story faced a setback this week, as the Manufacturing ISM released Friday was reported at 47.8 (below 49.5 est), providing the 16th consecutive month of manufacturing sector contraction. Other data points in the ISM report also demonstrated weakness, as New Orders at 49.2 and Production at 48.4 fell from expansion status last month, and Employment at 45.9 (below 48.5 est) is contracting at a faster pace than previous months.

• Is the grass greener or is the snow whiter (Real Estate):  With multifamily apartment REITs’ earnings in the rearview mirror, we wanted to highlight some differences we’re seeing between the U.S. and Canada. In the U.S., same-property net operating income is likely to be hampered this year (< 1% growth overall based on company guidance) due to softening demand and elevated levels of new units being delivered. While these effects will be felt across the country, they’re even more notable in the Sunbelt region, where cities like Austin and Nashville have outsized new supply and could be hit hardest. In contrast, Canadian apartment companies are expecting same-property net operating income to grow in the range of high single digits to low double digits (think 8 to 12%). Canada is benefiting from incredibly high demand and low supply of new apartments, despite low turnover and rent control in some areas. We would note that the province of Alberta, which largely lacks rent control and has few units being delivered this year, could see some of the highest rent growth in the Great White North.
• European travel plans? Expect more processing time (Infrastructure):  The EU is preparing to launch the Entry Exit System (EES) and European Travel Information and Authorization System (ETIAS). The EES is scheduled to go into effect this October (though has been subject to delays) and is a personal data collection system (fingerprints and facial images) for non-EU citizens entering the EU area and will replace manual passport stamping, while the ETIAS serves as a visa waiver for non-EU citizens and is expected to come online in 2025. Notwithstanding that the systems are designed to enhance security, they could increase processing times. One estimate, which could impact the tunnel concession owner, shows processing times for the Eurotunnel increasing to 6 minutes per car from the current ~60 seconds.
• Which metal has the mettle (Commodities): As the U.S. prepared new sanctions on Russian targets following the suspicious death of opposition politician Aleksey Navalny, several metals caught a bid in anticipation of being in the crosshairs of new measures. Nickel, Aluminum, Palladium, and Platinum all rose in advance of the U.S.’s official announcement, given the large amounts of these metals either mined, refined, or produced in Russia. However, given that metals escaped the new sanctions on over 500 people and entities, only Nickel held its price gains for the week, while Aluminum, Palladium, and Platinum all priced lower. In fact, Nickel gained almost 4% for the week (second only to Cotton in the commodities we track) and is the top-performing metal commodity so far in 2024. We see additional room for Nickel to climb given the series of mine supply curtailments announced over the past few weeks, though we are reminded of scandals the past few years, such as fake Nickel shipments that were nothing more than sand or steel. We’re also favorable toward Aluminum, which has been pressured by lingering uncertainty about global demand but should see a price recovery this year. On the other hand, Palladium and Platinum will need a rebound in automobile manufacturing (with combustion engines), a weaker U.S. dollar, faster Fed cuts, or more supply disruptions before a price recovery can be actuated.