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Aon Retirement and Investment Blog

Weekly Update - 18 April 2017


  • Onshore Chinese Bonds Enter the Global Universe. China’s large onshore bond market is becoming increasingly open and transparent and its entry into bond indices will have a big impact on index composition and, consequently, bond investing. This timely piece examines recent Chinese financial market developments, characteristics of the Chinese bond market, and opportunities and risks associated with the opening of the Chinese bond market.
  • Aon Hewitt's Datta Says U.K. Consumer Will Be StrainedTapan Datta, head of Global Asset Allocation at Aon Hewitt, and Bloomberg Gadfly's Andrea Felsted discuss the U.K consumer and the potential for an interest rate hike by the BOE. They speak to Bloomberg's Manus Cranny and Matt Miller on "Bloomberg Daybreak: Europe."* 
MARKET MOVES - Week Ending April 14, 2017
  • Global equity markets fell over the week as lingering geo-political issues continue to weigh on equity markets, especially following rising tensions in North Korea and Syria. The MSCI World Index fell by 0.7% over the week, outperforming S&P 500 which fell 1.1% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (5.4% vs. 4.6%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.4% over the week whereas the S&P 500 fell 1.1%. On a year to date basis, S&P 500 has outperformed Russell 2000 (4.6% vs. -0.5%). Value stocks underperformed Growth stocks last week (-1.2% vs. -1.0%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (7.9% vs. 1.9%).
  • 10 year US Treasury yield fell by 14bps to 2.24% and the 30 year US Treasury yield fell by 12bps to 2.89% over the week. 10 year yields hit a five-month low on the back of Trump’s comments about the US dollar which suggested that the US Federal Reserve should keep interest rates low as the strong US dollar was hurting the economy.
  • 20 year TIPS yield fell by 10bps to 0.45% over the week. 20 year Breakeven fell by 3bps to 1.88%.
  • Barclays Capital Long Credit Index spread over treasury yields rose by 1bp to 169bps over the week. The Merrill Lynch US Corporate Index rose by 2bp to end the week at 125bps.The US high yield bond spread over US treasury yields rose by 17bps to 403bps. The spread of USD denominated EM debt over US treasury yields finished the week 10bps higher at 316bps. 
  • The S&P GSCI rose by 1.0% in USD terms over the week. The energy sector rose by 1.3% as the price of WTI crude oil continued on an upward trend, rising by 1.8% to US$ 53/BBL. Industrial metals fell by 2.5% as copper prices decreased by 2.4% to $5,660/MT. The agricultural sector bucked a recent trend and rose by 1.3% whilst gold prices rose by 1.6% to$1,286/ounce as political uncertainty increased.
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 1.0% against sterling, ending the week at $1.25/£. US dollar weakened by 0.1% against the euro, finishing the week at $1.06/€. The Japanese yen rose by 1.4% against the US dollar, ending the week at ¥109.24/$.
  • Economic data was fairly mixed in the US last week. Both consumer and producer price inflation came in lower than expected. Annual consumer price inflation dropped to 2.4%, below expectations of a 2.6% increase in prices. Consumer prices in March dropped by 0.3% on the back of a sharp fall in gasoline prices. Meanwhile, there was disappointment from the advance figures for March retail sales which saw a monthly fall of 0.2% – a second successive month of retail falls. Demand for vehicles softened over March; retail sales (excluding vehicles) rebounded 0.5% following a downward revision to the previous month to a 0.2% decline. Despite the disappointing news, consumer confidence remained buoyant with the University of Michigan's confidence index increasing to 98.0 from 96.9, above expectations of a slight decrease to 96.5.
  • Eurozone economic data was largely mixed. Industrial production underwhelmed as annual production growth was only 1.2%, below estimates of 1.9% growth. Monthly production growth slipped by 0.3%. The fall was largely driven by contractions in energy and non-durable consumer goods productions. Investor sentiment in the region performed better with the Sentix investor confidence index advancing by 3.2 points to 23.9 – the highest level since 2007. Similarly, economic sentiment in Germany improved significantly as the ZEW Economic Sentiment Survey rose to its highest levels since the UK's EU referendum last summer. April's measure of Germany's economic outlook increased to 19.5 from 12.8 which was also well above forecasts of a milder increase to 14.8.
  • Japanese economic data was encouraging in what was a fairly light week in terms of economic releases. A widening of the trade surplus (as a result of exports rising at a faster rate relative to imports) led to the sharp increase in current account surplus to ¥2813.6bn from ¥65.5bn. The finalised figure for industrial production growth over February was revised up to 3.2% from 2.0%. Machine orders rose by 1.5% in February, which was less than the forecasted 3.6% increase. The Producer Price Index (PPI) continued on an upward momentum as the index rose by 1.4% over the year to March (the fastest pace since December 2014) on the back of increases in export prices.
  • There was broadly positive economic data emanating from China last week. Consumer price inflation increased marginally to 0.9% for the year to March albeit below expectations of inflation at 1.0%. Conversely, producer price inflation moderated slightly to 7.6% partly on the back of falling energy and chemical prices, but was above forecasts of 7.5% growth. Exports rebounded strongly in the year to March, increasing by 16.4% after an unexpected 1.3% decline in the year to February. Whilst imports also surprised on the upside, the strong growth in exports led to a widening of the trade surplus to $23.9bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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