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Aon Retirement and Investment Blog

Weekly Update - 03 April 2017

MARKET MOVES - week ending March 31, 2017

  • Global equity markets were supported by higher energy prices last week. The MSCI World Index rose by 0.6% over the week, underperforming S&P 500 which rose 0.8% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (6.5% vs. 6.1%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 2.4% over the week whereas the S&P 500 returned 0.8%. On a year to date basis, S&P 500 has outperformed Russell 2000 (6.1% vs. 2.5%). Value stocks marginally underperformed Growth stocks last week (0.8% vs. 0.9%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (9.1% vs. 3.5%).
  • 10 year US Treasury yield fell by 2bps to 2.39% while the 30 year US Treasury yield was unchanged at 3.01% over the week.
  • 20 year TIPS yield fell by 1bp to 0.54% over the week. 20 year Breakeven fell by 1bp at 1.94%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 1bp to 168bps over the week. The Merrill Lynch US Corporate Index rose by 1bp to ending the week at 124bps.The US high yield bond spread over US treasury yields fell by 15bps to 392bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps higher at 310bps. 
  • The S&P GSCI rose by 2.7% in USD terms over the week. The energy sector rose by 5.0% as the price of WTI crude oil rose by 6.8% to $51/BBL. Crude oil prices rose after US crude inventories increased less than expected. Industrial metals rose by 0.4% as copper prices increased by 0.7% to $5,816/MT. Agricultural prices fell by 0.7% and the gold price fell by 0.1% to $1,247/ounce.
  • The US dollar appreciated against the euro and the yen, but depreciated against sterling. The US dollar depreciated by 0.1% against sterling, ending the week at $1.25/£. US dollar strengthened by 1.0% against the euro, finishing the week at $1.07/€. The Japanese yen fell by 0.3% against the US dollar, ending the week at ¥111.43/$.
Economic Releases
  • Economic releases were largely positive in the US last week, as GDP growth for the fourth quarter of 2016 was revised up to 2.1% from 2.0%. Consumer confidence, as measured by the Conference Board Consumer Confidence index, outperformed expectations and surged to 125.6 from a revised 116.1; the highest level in 16 years. Based on provisional data, wholesale inventories rose by 0.4% after falling 0.3% in the previous month. Following a disappointing start to the year, the US housing market rebounded as the number of pending home sales increased by 5.5%; significantly outperforming expectations of a 2.5% increase.
  • Inflation remains below the European Central Bank's target of 2% according to the latest Consumer Price Index (CPI) data. In the Eurozone, prices rose by 1.5% compared with 1.8% expected over the year to March; the lowest reading for 3 months. The latest reading for core inflation of 0.7% was also lower than expected. Similarly, German CPI inflation fell below expectations as prices rose 0.2%, well below expectations of 1.6%. Eurozone surveys for economic, industrial and services confidence were all below consensus estimates in March and also lower than the previous month. The number of people unemployed in Germany fell by 30k, which was 20k more than expected. This took the jobless rate, as measured by the unemployment claims rate, to a record low of 5.8%.
  • Japanese economic data had a mixed week. Headline CPI rose to 0.3% over the year to February beating analyst forecasts of 0.2%. Meanwhile, core inflation, which excludes both fresh food and energy, rose by 0.1% meeting expectations. The labour market strengthened in February as the jobless rate fell to a 22-year low of 2.8% whilst the job-to-applicant ratio remained unchanged at 1.43. Retail sales rose by 0.2% in February, less than the consensus estimate of a 0.3% increase. The provisional release for industrial production showed an increase of 4.8% over the year to February which was above consensus estimates of 3.9% growth.
  • Economic releases were broadly encouraging in China last week and pointed to a stronger economy. Both the manufacturing and non-manufacturing sectors continue to grow, as the latest official Purchasing Managers' Indices increased to 51.8 and 55.1 respectively. In particular, the latest manufacturing PMI reading was the highest reading since April 2012. The Caixin China Manufacturing PMI, however, unexpectedly slipped to 51.2 from 51.7 with slower growth in production and new orders attributed to the 0.5 point fall. China continues to run a current account surplus but the final reading for the last quarter of 2016 showed a steep decline in the surplus to $11.8bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
Click here for index descriptions.

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