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Aon Hewitt Retirement and Investment Blog

Weekly Update - 10 April 2017

MARKET MOVES - week ending April 7, 2017
Equities

  • Global equities had a lackluster start to the second quarter as the MSCI AC World Index drifted down by 0.1% in local currency terms over the week. US Federal Reserve meeting minutes confirmed the trend of monetary tightening whilst disappointing US employment data and increasing eco-political tensions with Syria only slightly unnerved equity markets. The MSCI World Index fell by 0.4% over the week, underperforming S&P 500 which fell 0.2% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (6.1% vs. 5.8%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.5% over the week whereas the S&P 500 fell 0.2%. On a year to date basis, S&P 500 has outperformed Russell 2000 (5.8% vs. 0.9%). Value stocks marginally underperformed Growth stocks last week (-0.3% vs. -0.2%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (8.9% vs. 3.1%).
Bonds
  • 10 year US Treasury yield fell by 1bp to 2.38% while the 30 year US Treasury yield was unchanged at 3.01% over the week. 10 year yields hit a low of 2.27% on Friday due to the disappointing US employment report but later recovered on speculation regarding the pace of the US Federal Reserve’s reduction of its $4.5 trillion balance sheet.
  • 20 year TIPS yield rose by 1bp to 0.55% over the week. 20 year Breakeven fell by 3bps to 1.91%.
  • Barclays Capital Long Credit Index spread over treasury yields remained unchanged at 168bps over the week. The Merrill Lynch US Corporate Index fell by 1bp to end the week at 123bps.The US high yield bond spread over US treasury yields fell by 6bps to 386bps. The spread of USD denominated EM debt over US treasury yields finished the week 4bps lower at 306bps.
  • Commodities
  • The S&P GSCI rose by 1.7% in USD terms over the week. The energy sector rose by 3.2% as the price of WTI crude oil rose by 3.4% to $52/BBL partly due to the US launch of missile attacks on a Syrian air base. Industrial metals fell by 0.8% as copper prices decreased by 0.3% to $5,799/MT. Agricultural prices fell by 1.0%. Gold prices rose by 1.5% to $1,266/ounce on the back of increased demand for safe haven assets.
Currencies
  • The US dollar appreciated against major currencies (except for the yen) over the week. The US dollar appreciated by 0.9% against sterling, ending the week at $1.24/£. US dollar strengthened by 0.7% against the euro, finishing the week at $1.06/€. The Japanese yen rose by 0.6% against the US dollar, ending the week at ¥110.74/$.
ECONOMIC RELEASES
  • Economic data was fairly mixed in the US last week. The keenly watched ISM Manufacturing index slipped by 0.5 points to 57.2 but, given that it remains well above the key 50 level, the manufacturing sector continued to expand. The unemployment rate fell to a 10 year low of 4.5%; below both last quarter's reading and consensus estimates of 4.7%. However, nonfarm payrolls grew by just 98,000 compared with the 180,000 forecasted. Against a still tightening labour market, annual average hourly earnings growth met forecasts of 2.7% - slightly lower than February's reading of 2.8%. The fall in the US trade deficit to $43.6bn, which was expected to be $44.6bn, was welcomed by the US administration who have placed shrinking the trade deficit at the forefront of US policy.
  • Eurozone economic data was largely as expected on the whole. The composite PMI figure for March was revised down from the flash estimate of 56.7 to 56.4 but remained above February's reading of 56.0 driven by strong growth in both France and Germany. Unemployment fell by 0.1%, as expected, to 9.5% in February, which is the lowest level since May 2009. The industrial producer prices index (PPI) rose in February by 4.5% from a revised 3.9%% in February (the highest level in more than five years); the increase was 0.3% more than forecasted. Monthly industrial production in Germany impressed in February, rising 0.2% ahead of forecasts at 2.2%.
  • Japanese economic data was generally strong. The Bank of Japan’s Q1 2017 Tankan survey revealed an optimistic outlook for the economy but fell short of analyst expectations. The Tankan large manufacturer’s index rose to 12 from the previous reading of 10, reaching an 18-month high. The final reading of the Nikkei composite PMI was revised up to 52.9 in March from 52.2 as the services PMI rose to 52.9 from 51.3. However, the final manufacturing PMI was marginally revised downwards to 52.4 from 52.6 over the same period. Wage growth data disappointed as labour earnings rose by 0.4% in the year to February Real wages, which takes inflation into consideration, remained flat over the same period.
  • There was little economic data released in China last week. Similar to the Caixin China Manufacturing PMI released in the previous week, the Services PMI slipped by 0.4 points to 52.2. China's foreign exchange reserves rose by $4bn to $3,009bn, supporting views that the reserve level has stabilized after resuming to fall last year.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.


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