Market index returns

Week to date since March 13, 2024 as of March 20, 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.

Global equities edged higher this week as investors heard from central banks around the globe. There were more central bank meetings this week than you could shake a stick at, with rate cuts starting (or continuing) for some, while those that held steady were accompanied by dovish messaging, and even a rate hike in Japan (the first in 17 years) was viewed as remaining in very accommodative positioning. Aside from reactions to central bank activity, markets were relatively calm with volatility largely absent, and credit spreads continuing to tighten. Yet, given the dovish central bank outlook and expectations of lower rates, gold continued to climb and briefly broke through the $2,200/oz level for the first time ever. Of the Real Assets classes, Natural Resource Equities bested the returns of broader equities as energy producers raced higher, while Commodities finished just behind broader equities with notable performance in precious metals. TIPS had minor losses, while Global Real Estate and Global Infrastructure securities fell a little more as data centers and tower names dragged the groups down.

Why it matters: Investors remain optimistic of a soft- or no-landing scenario in the U.S. and received some assurance this week that the U.S. Federal Reserve (Fed) remains on track to start easing this summer. Recessions in Europe look to be shallow, with growth expected to resume later this year. Geopolitical conflicts remain relatively contained for now, and the U.S. Congress appears poised to pass a full year budget ahead of this weekend’s deadline. While it looks to be smooth sailing for capital markets heading into the summer months, rapid developments on several fronts could change the rosy situation at any time and longer-term issues will become near-term challenges at some point. Inflation in many regions is not yet down to central bank targets, increasing the risk of higher prices of goods or higher rates for longer. The U.S. still needs to address fiscal issues and find a sustainable long-term budgetary plan. Conflicts in Ukraine and the Middle East could escalate at any time, while North Korea threatens war with the world, and China’s ultimate actions on Taiwan remain unknown. We also have a presidential election in the U.S. this fall that will shape domestic and foreign policy for the next four years and beyond.

Macro Dive: This week was all about global central bank activity; we cover the Fed, the Bank of Japan (BoJ), and the Bank of England (BOE) in detail below and conclude with a rapid summary of several others. 

• Of doves and dots: The Fed concluded its 2-day policy meeting this week leaving the Fed Funds target range unchanged at 5.25% to 5.50%. Most surprising was the updated dot plot, which continues to show members expecting three rate cuts this year, despite two consecutive months of inflation data coming in hotter-than-expected. However, one cut was removed from 2025, while the number in 2026 was unchanged, indicating three cuts expected in both years. Updates to their economic projections also showed real GDP growing faster than prior projections in 2024 (2.1% from 1.4%), 2025 (2.0% from 1.8%), and 2026 (2.0% from 1.9%) and slightly lower unemployment in 2024 and 2026 (both down to 4.0% from 4.1%), while leaving their 2025 unemployment forecast unchanged at 4.1%. Headline PCE projections were largely unchanged though core PCE for 2024 was nudged 20bps higher to 2.6%. When asked about the recent higher inflation prints, Fed Chairman Powell responded, “I think they haven’t really changed the overall story” and “we’re not going to overreact to these two months of data, nor are we going to ignore them.” Overall, these projections and comments were view dovishly, with equity markets rallying and yields on U.S. 10-year Treasuries dropping. Investors continue to expect three rate cuts this year (matching the dot plot), but odds of the first cut occurring by June (via Fed Funds futures) rose following the release and press conference and now sit at ~85%.
• Goodbye NIRP: The global era of negative interest rate policy (NIRP) ended this week when the last holdout, the BoJ, raised its short-term rate from -0.1% to a range of 0% to 0.1%. This was their first hike since 2007 and officially ends their NIRP, which began in March of 2016. The BoJ also stated they were ending their yield curve control (YCC) policy which held 10-year Japanese government bonds (JGBs) in a tight range. However, as there was no clear signal from the BoJ that additional hikes would be coming, the yen weakened against the U.S. dollar (and other currencies) breaking through the 150 level. Furthermore, the BoJ will end the purchase of ETFs and J-REITs, while winding down purchases of commercial paper and corporate bonds over the next year. They will continue to purchase JGBs, and we do expect some intervention if the yen weakens much further. While no forward guidance was given by the BoJ, these recent policy moves were viewed in aggregate as a dovish hike by the markets, as policy remains very accommodative, although market participants (via overnight index swaps) do expect one or two more hikes before the end of this year.
• BOE rates to carry on, but not for long: Following inflation reports that showed UK’s February Consumer Price Index (CPI) falling to 3.4% year-on-year, and core CPI falling to 4.5% (both 10 bps lower than expected and down from January’s 4.0% and 5.1%, respectively), the BOE opted to hold their policy rate unchanged at 5.25% in an 8-1 vote. Two voting members who had previously called for higher rates changed their views, and this meeting’s lone dissenter was in favor of a cut. Governor Andrew Bailey noted in a prepared statement, “We're not yet at the point where we can cut interest rates, but things are moving in the right direction.” Given the dovish messaging of the meeting, yields on UK gilts dropped and the pound weakened against the dollar and the euro. As for the timing of future cuts, investors are expecting an 84% chance of a first cut by June (per overnight index swaps) and three total cuts expected in 2024
• Central bank-apalooza: We counted no fewer than 17 central banks that held policy setting meetings this week. We’ve already discussed the headliners above, but also wanted to give a quick recap of the opening acts and side stage performers below:
  • Raising rates: In addition to the BoJ, Taiwan increased by 12.5 bps to 2.0%, and Turkey raised by 5% to 50% (they have inflation at 70%+)
  • Holding rates: In addition to the Fed and BOE, Australia held at 4.35%, China held 1- and 5-year prime rates at 3.45% and 3.95%, Indonesia held at 6.0%, Norway held at 4.5%, Pakistan held at 22%, and Russia held at 16.0%
  • Cutting rates: Switzerland cut by 25 bps to 1.5% (a surprise move), Brazil lowered by 50 bps to 10.75%, Colombia cut by 50 bps to 12.25%, the Czech Republic cut by 50 bps to 5.75%, Mexico reduced by 25 bps to 11.0%, and Ukraine cut by 50 bps to 14.5%

Real Assets, Real Insights: We first note the pickup in real estate transactions with a sampling of recent deals, then explore planned investments to modernize Europe’s electrical grid, and conclude with why beef prices are on the rise.

• Americas transaction activity comes alive (Real Estate): The pace of real estate transactions involving public and private players in the Americas is picking up speed and leading to price discovery for multiple property types. First up, Host Hotels & Resorts, Inc. (Nasdaq: HST) is under contract to purchase two recently developed hotels in Nashville near the Music City convention center from a private joint venture in what could be record pricing for the market. While the final terms have not been announced, pricing is expected to be greater than $500M or $700k/room. Next, a shopping center REIT, Site Centers (NYSE: SITC), is in talks to sell six centers to a Utah retirement plan and their operating partner, Pine Tree, for ~$500M. These retail centers are located in multiple markets and would be in addition to ~$820M of assets sold by SITC in 4Q23 and earlier this year as they look to prune assets ahead of a planned spin-off. Lastly, we would note privately-held TPG Inc. is said to be under exclusive discussions to acquire the manufactured housing business of Canadian Apartment Properties Real Estate (TSX: CAR-U), which consists of over 12k sites for more than $519M, as CAR-U looks to focus their business on their core multifamily apartment holdings. 
• UK/Italy’s grids to see upgrades (Infrastructure): Plans to harden and modernize electrical grids in Europe and the UK continue to make progress. This week National Grid plc (LSE: NG.L) announced a £58B electricity investment program in the UK, and Terna S.p.A (MTA: TRN) announced €16.5B in planned investment in Italy. National Grid’s electricity system operator (ESO) says the plan is needed to address the UK’s growing electricity needs and to reach the country’s 2035 decarbonization goals. Their plan would include thousands of miles of new cabling, connecting 85 gigawatts (GW) of offshore wind power to the grid and creating a high-capacity electrical spine that runs from NE Scotland to NW England while also creating 20k jobs per year. Terna, which runs the electrical grid in Italy, said their plan would run through 2028 and “will enable Terna to strengthen its strategic role as enabler of the national electricity system and to accelerate its commitment to driving the Country’s energy transition and decarbonisation.” Additionally, we expect to see similar modernization plans in other part of Europe (and the U.S.) as new sources of power are added and to increase resiliency and redundancy of the grids, to accommodate peak usage times and help prevent outages during natural disasters.
• Where’s the beef? (Commodities): Hamburger lovers could find themselves in a pickle this summer as beef prices are on the rise. Livestock is the top performing commodities segment so far this year and Live Cattle prices are up over 11% to date. Per a recent USDA report, the U.S. beef cow inventory started the year at 28.2M, which is 2% lower than the start of 2023 and the lowest level since 1951. Droughts in grazing areas along with higher costs of feed, labor, and processing have led ranchers to cull herd sizes and there are warnings that beef prices could hit record highs this year. Furthermore, anyone considering substituting pulled pork or pork ribs for those burgers and steaks should note that Lean Hogs prices are climbing as well, currently up ~14% year-to-date, an even faster clip than Live Cattle. We’ll be watching to see if ranchers will ‘lettuce’ know if higher prices will give them incentive to allow beef herd sizes to ‘ketchup’ to prior levels, otherwise our future cookouts might not cut the mustard.