Weekly Market Insight: Fed Hiked Interest Rate Again

Last week, the Fed raised the benchmark rate to 5.1%, marking the highest rate since 2007. Although this may be the last hike, the US job data suggests a healthy economy. However, the market’s prediction of rate cuts from the Fed this year will be tested this coming week with US CPI on the radar. The banking sector risks and progress on the US debt ceiling standoff will heavily influence the outcome. As for earnings, the calendar thins out with consumer brands like PayPal and media giant Walk Disney set to report.

What’s happening

The banking crisis is a major concern, with fears of more regional banks falling victim to the rapid rise in interest rates over the last 1.5 years. Four US banks have already collapsed, and there is a crisis of confidence in the banking sector amid concerns that big unrealized losses on bond investments might push some of them to the brink.

The impasse over the US debt ceiling also continues to threaten further pressure on the US financial markets, with Treasury Secretary Janet Yellen warning that there are “no good options” for solving the debt limit stalemate other than Congress lifting the cap. Further concerns on credit tightening or delays in debt ceiling solution could continue to drive up short-term Treasury yields.

In terms of earnings, 32 S&P 500 companies will report quarterly results, including one from the Dow Jones Industrial Average (DJIA), Walt Disney (DIS). Results from PayPal, Tyson Foods, and Under Armour will be on test for how consumer spending is holding up in the wake of rising interest rates and risks of an impending credit crunch. Airbnb’s earnings are also expected to show double-digit growth in bookings as global travel demand remains upbeat.

What’s happening in Singapore

The REIT sector has been struggling due to uncertainty around interest rates and higher financing costs, but a potential pause in Fed rate hikes could help improve the sector’s performance. UOB’s 1Q23 earnings beat expectations due to higher trading and investment income, but the bank may face challenges going forward with deposit competition and resistance to climbing loan pricing. Mapletree Logistics Trust (MLT) reported stable performance with a marginal increase in occupancy and a focus on asset enhancement and capital recycling.