CPI inflation numbers – published on Friday – surprised marginally to the upside, pushing long end US rates up and equities down. While the miss was small – 0.2% – investors were likely expecting a softening, as suggested by recent economic data on mortgage applications and the latest Price Consumption Expenditures (PCE) reading. Inflation appears to be a global phenomenon at this stage, especially as high energy prices triggered a record increase in prices in the eurozone. As a result, at a meeting this week, the European Central Bank (ECB) pledged to begin its hiking cycle in July even as the eurozone economy remains shaky.
The coming week’s FOMC meeting is now once again front and center, as investors will likely be looking for clues on the Committee’s commitment to fight inflation. While the FOMC is unlikely to be swayed by a single inflation number’s miss, especially since it was close to expectations, its credibility may be at stake if markets start suspecting policymakers are not determined to bring down inflation. The broad expectation is for “strong” verbal commitment, but for the policy path to stay the same. Importantly, the Fed will also publish updated projections for both the economy and the so-called “dot plot.”
In addition to the FOMC meeting, May retail sales and April business inventories data will be released on Wednesday. Both will likely offer clues about a potential slowdown – the former more focused on consumer behavior, the latter on business confidence. According to a recent poll, 83% of US consumers do not feel optimistic about the economy.1
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On the real estate front, May building permits and housing starts will be published on Thursday. While real estate seems to have been hit by higher rates, as weekly mortgage application numbers plummeted last week, demand for rental properties remains strong, and certain geographies within the US continue to show appreciation. Finally, May industrial production numbers will be out on Friday, which will give investors some clarity about manufacturing trends.
At its monetary policy meeting this week, the ECB pledged to raise interest rates from its record low levels – the deposit rate is currently at -0.5% – starting in July, and then again in September. The deliberation comes at a pivotal time for the eurozone economy. After years of undershooting their own inflation projections – despite negative deposit rates, large liquidity facilities and several different asset purchase programs – ECB officials are currently confronted by an exogenous shock that threatens both price stability and growth. It remains to be seen how effective monetary tightening is in protecting the former without compromising the latter.
In China, the government’s zero COVID policy is weighing heavily on economic growth. China’s yuan has slid as record flows of capital pull out of the country’s financial markets. But recent regulatory policy moves – such as the end of a cybersecurity investigation against the ride hailing giant Didi – have spurred renewed investor interest in the country’s now potentially undervalued tech stocks.
In the past month, Yieldstreet has launched a number of products that it believes were suited for the currently volatile market cycle. However, we are not focused on responding to the cyclical swings that we believe will always be happening. Including private market exposure in a portfolio – through a differentiated allocation to various opportunities – may help diversify a portfolio allocation in the medium-term.
This past week, Yieldstreet offered access to a built-for-rent (BFR) real estate opportunity in Savannah, Georgia, which we believe is a timely investment given that decrease in home affordability is likely to support rentals, in our view. Built-for-rent developments are typically sold in one transaction, to an institutional buyer. As such, BFR communities trade at a cap rate like other commercial properties, as opposed to trading on a per-unit basis.
In addition, Yieldstreet offered an additional opportunity in supply-chain finance. All previous offerings have fully repaid and performed in line with expectations.
1 Wall Street Journal, University of Chicago Poll – https://www.wsj.com/articles/inflation-political-division-put-u-s-in-a-pessimistic-mood-poll-finds-11654507800
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