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iBoxx ALBI Monthly Commentary: August 2022

U.S. Equities Market Attributes August 2022

iBoxx SGD Monthly Commentary: July 2022

iBoxx USD Asia Ex-Japan Monthly Commentary: July 2022

iBoxx ALBI Monthly Commentary: July 2022

iBoxx ALBI Monthly Commentary: August 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

August 2022 Commentary

The Jackson Hole Symposium was one of the key events investors looked out for in August, as they paid close attention to the speech by the Federal Reserve Chair to anticipate the next move in the upcoming FOMC meeting in September. Markets were somewhat surprised by the hawkish stance, with a clear message that tackling inflation remained the main objective even at the expense of slower growth.

In the aftermath of the speech on Aug. 26, 2022, the S&P 500® lost 3.37% (one-day decline) and was down 4.24% for the month of August. U.S. Treasuries—as represented by the iBoxx $ Treasuries—also lost 2.64% in August.

It was a contrasting picture in Asia, as moves from central banks varied from market to market. The People’s Bank of China lowered its five-year loan prime rate (LPR) by 15 bps to 4.30% and its one-year LPR by 5 bps to 3.65%. This came one week after lowering both the one-year medium-term lending rate (MLF) and seven-day reverse repo rate by 10 bps in mid-August in a bid to inject liquidity into the economy. The onshore bond market rallied as a result, which saw the iBoxx ALBI China Onshore—consisting of China Government Bonds and Chinese Policy Banks—return 1.03% in August.

From a broader Asian perspective, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) fell into the red, returning -1.31%, largely due to local currency FX losses against the U.S. dollar. This was despite most markets (in domestic currency terms) recording positive returns, except for South Korea (-4.46%) and Hong Kong (-2.08%).

This month, the largest losses were concentrated in the 10+ maturity segment, where South Korea 10+ (-8.51%) and Hong Kong 10+ (-5.76%) stood out. There were a number of markets that saw gains across maturity segments this month, including China On- and Offshore, India, Indonesia, Malaysia, the Philippines and Thailand.

The overall index yield (in semiannual terms) rose above 4%, offering 4.09% as of Aug. 31, 2022. Hong Kong (up 57 bps), South Korea (up 56 bps) and Singapore (up 24 bps) contributed to the increase, while other markets saw their yields decline. India remained the highest-yielding bond market in the index, offering 7.30%, while China Onshore (2.78%) remained the lowest-yielding market.

 

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U.S. Equities Market Attributes August 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights


- The S&P 500® was down 4.24% in August, bringing its YTD return to -17.02%.
- The Dow Jones Industrial Average® lost 4.06% for the month and was down 13.29% YTD.
- The S&P MidCap 400® fell 3.25% for the month, bringing its YTD return to -14.46%.
- The S&P SmallCap 600® was down 4.51% in August and had a YTD return of -15.53%.

U.S. Equities
August 2022 - Exhibit 1

Market Snapshot

Winston Churchill (June 4, 1940), and now Jerome Powell (Aug. 26, 2022): "We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

The S&P 500 tried to balance interest rates and Fed expectations against costs and profits, but found no balance in August, as it traded most of the month up (reaching 4.72% on Aug. 16), supporting the 4,100 level and then 4,200 (and at one point breaking above 4,300). It ignored statements from the Fed that it would do whatever it took to fight inflation and ended the month trying to defend 4,000, but it closed south at its monthly low of 3,955 (down 4.24% for the month). The realization came at Jackson Hole (with a one-day 3.39% decline), when Powell committed to beating inflation, to "use our tools forcefully" and "for some time," acknowledging that it would inflict "some pain," which he said was one of the "unfortunate costs of reducing inflation."

The result was that the market changed its anticipation of dovish Fed actions to expect an interest rate increase of 0.75% at its Sept. 20-21, 2022, meeting (there are some hoping for 0.50%, along with a few expecting 1.00%), followed by a 0.50% hike in November and then a 0.25% rise in December. There now seems to be no market for bets on a first-half Fed rate cut (a few for the second half), and given the time the increases take to fully flow through the economy, I would personally add rightly so.

For the index, this meant a 4.24% decline in August, down 17.02% YTD, and up 7.86% from its recent June 16, 2022, low as the market entered September, which is historically the worst month of the year, with an average decrease of 1.03% (since 1928).

September is traditionally when we get back to work from our summer vacation, but neither July nor August seemed dull. Economic data is expected to dominate the view, and therefore the trades (and reallocations), as the month will open with the ISM Manufacturing PMI, followed by Employment (Sept. 2), with the usual suspects following: ISM Services PMI (Sept. 6), CPI (Sept. 13), PPI (Sept. 14), Imports/Exports (Sept. 15) and then the Quadruple Witching day and S&P 500 rebalance (Sept. 16). The main event will be the FOMC meeting (Sept. 20-21), as a host of housing, inventory, income and GDP reports follow, with Q3 2022 earnings raising its head at month-end. Also in the news (and in the trades) will be the back-to-school sales, which are not expected to be good, as consumers, in general, have already pulled back. The consumer summer spending spree is already showing forward signs of decline (bookings, purchases), as retail stores are expected to start sales of overstocked merchandise, with concern over the holiday season growing.

Historically, August gains 59.6% of the time, with an average gain of 3.89% for the up months, a 3.95% average decrease for the down months and an overall average increase of 0.72%. In the forward September month, historically, the index posts gains 44.7% of the time, with an average gain of 3.28% for the up months, a 4.70% average decrease for the down months and an overall average decrease of 1.03% (historically, the worst month of the year).

The S&P 500 closed at 3,955.00, down 4.24% for the month (-4.08% with dividends) from last month's close of 4,130.29, up 9.11% (9.22%) from June’s 3,785.38 close, down 8.39% (-8.25%). The three-month period posted a loss of 4.29% (-3.88%), the YTD return was -17.02% (-16.14%) and the one-year return was -12.55% (-11.23%), with the index down 17.55% (-16.68%) from its Jan. 3, 2022, closing high, up 7.86% (8.21%) from the recent June 16 low, and up 16.80% (21.61%) from its pre-COVID-19 Feb. 19, 2020, closing high. Since Biden won the Nov. 3, 2020, U.S. election, the market has gained 17.39% (20.68%).

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iBoxx SGD Monthly Commentary: July 2022

July 2022 Performance

Singapore’s central bank tightened monetary settings in July to combat further upside inflation risk. The off-cycle decision followed
the release of economic data, which showed zero economic growth in Q2, but prices picked up in a broad range of goods and services.

The Monetary Authority of Singapore (MAS) announced it would recenter the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER)2 policy band to its prevailing level while keeping the slope and width of the band unchanged. The move set the path to a stronger local dollar in the medium term and may help to slow rising prices in the city.

Meanwhile, the central bank raised the full-year core inflation projection from an earlier forecast of 2.5%-3.5% to 3.0%-4.0% for the year.
Against this backdrop, stocks and bonds recorded strong performances in July. The Straits Times Index rallied 3.5%, while the
iBoxx Singapore Dollar (SGD) Overall Index returned 1.45%—the first monthly gain in 2022.

The investment grade subindex outperformed the high yield subindex by 263 bps this month. Returns from the 10+ year maturity buckets exceeded the returns from the short- and medium-end, and the AAA and AA segments of the overall index outshone other rating buckets.

The sovereign and non-sovereign subindices recorded gains this month. The top performers included long-dated Singapore government bonds and one small corporate bond from the REIT sector. The standout worst-performing bond was the BB rated MAGIC 3.5% Perp bond, which lost 6.10% in July.

The overall index ended the month with a yield of 3.05% and a duration of 6.54 years.

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iBoxx USD Asia Ex-Japan Monthly Commentary: July 2022

July 2022 Commentary

Several central banks raised their policy rates in July, as inflationary impulses accelerated and became more broad-based globally. In the U.S., the Federal Reserve (Fed) delivered another 75 bps rate hike at the July meeting. Recently released data indicated that the U.S. economy may have hit a technical recession after consecutive quarters of negative GDP growth. Subsequently, stocks and bonds rallied moderately on the assumption of a Fed pivot toward a more gradual monetary tightening policy. But the visibility of the near-term path of inflation and growth remained uncertain due to external factors such as supply chain disruptions and geopolitical tensions. However, the path of the Fed policy, as emphasized by Fed Chair Jerome Powell, should be dependent on economic data.

Returns of Asian USD bonds turned positive in July, with the iBoxx USD Asia ex-Japan Index gaining 0.44%, the first positive monthly index performance since December last year. The index yield fell 0.25 bps to 5.58%, and the index spread narrowed 2 bps to 271 bps.

This month, the investment grade (IG) subindex considerably outperformed the high yield (HY) subindex by 2.11%. In the IG segments, significant gains were seen in long maturity buckets. In the HY segments, losses were generally observed across the curve, except for the 5-7 year maturity bucket.

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iBoxx ALBI Monthly Commentary: July 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

July 2022 Commentary

In line with market expectations, the Federal Reserve raised its key benchmark rate by 75 bps in July—its second increase of this magnitude in consecutive months and its fourth hike this year. With the Hong Kong dollar pegged to the U.S. dollar, the Hong Kong Monetary Authority (HKMA) acted swiftly after the announcement and raised its base rate by the same margin (75 bps). Other Asian central banks also tightened their monetary policy over the past month, including the Bank of Korea (up 50 bps), Bank Negara Malaysia (up 25 bps), Bangko Sentral ng Pilipinas (up 75 bps) and Monetary Authority of Singapore (via raising the mid-point of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band).

The S&P 500® recorded strong gains in July, up 9.11%, outperforming U.S. Treasuries (proxied by the iBoxx USD Treasuries), which returned 1.70%. U.S. TIPS (represented by the iBoxx TIPS Inflation-Linked Index) climbed 4.58%.

It was a good month for Asian fixed income as well. The iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) gained 1.21%, supported by gains in all eligible underlying markets in local currency terms. This was despite FX losses against the U.S. dollar in all but two markets—
namely Singapore and Indonesia. South Korea was the top performer (up 4.42%), while Malaysia (up 2.58%) and Thailand (up 2.48%) were a distant second and third.

Looking at different maturity segments, it was largely a sea of green except for short-to-medium dated Indonesian government bonds. Bonds at the long end of the curve generally performed better, with South Korea 10+ Year (up 8.11%), Hong Kong 10+ Years (up 5.82%) and Thailand
10+ Years (up 5.18%) scoring the highest performance in July.

Yields (in semiannual terms) declined in all markets except Indonesia in July. As a result, the average index yield dropped 25 bps to 3.98%. The largest change came from South Korea (-46 bps), which offered an average yield of 3.07% as of July 31, 2022. India remained the highest-yielding bond market in the index, offering 7.42%, while China Onshore (2.91%) was the lowest-yielding market.

 

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