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Aon Retirement and Investment Blog

Weekly Update - 24 April 2017


MARKET MOVES - Week Ending April 21, 2017
  • Global equities over the week were impacted by geo-political tensions with North Korea, uncertainty over the first round of French elections and the UK Prime Minister's announcement of a snap general election in June. Despite this, markets edged higher over the week, helped by better than expected US corporate earnings. The MSCI World Index rose by 0.6% over the week, underperforming S&P 500 which rose 0.9% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (6.0% vs. 5.5%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 2.6% over the week whereas the S&P 500 rose 0.9%. On a year to date basis, S&P 500 has outperformed Russell 2000 (5.5% vs. 2.1%). Growth stocks outperformed Value stocks last week (1.4% vs. 0.3%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (9.4% vs. 2.2%).
  • 10 year US Treasury yield and the 30 year US Treasury yield rose by 1bp each to 2.25% and 2.90% over the week.
  • 20 year TIPS yield rose by 8bps to 0.53% over the week. 20 year Breakeven fell by 7bps to 1.81%.
  • Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index remained unchanged at 169bps and 125bps over the week. The US high yield bond spread over US treasury yields fell by 6bps to 397bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 314bps. 
  • The S&P GSCI fell by 4.6% in USD terms over the week. The energy sector fell by 6.6% as the price of WTI crude oil declined by 6.7% to $50/BBL. Crude oil prices fell due to an unexpected increase in US gasoline stockpiles. Industrial metals fell by 0.9% as copper prices decreased by 1.2% to $5,594/MT. Agricultural prices fell by 2.4% whilst the gold price remained flat at $1,286/ounce.
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 2.1% against sterling, ending the week at $1.28/£ as the pound rallied on expectations of a major win for May’s Conservative party in the upcoming general elections. US dollar weakened by 0.6% against the euro, finishing the week at $1.07/€. The Japanese yen rose by 0.1% against the US dollar, ending the week at ¥109.09/$.
  • Economic data last week further signaled some moderation in US economic activity. The provisional reading for the Markit Manufacturing Purchasing Managers' Index (PMI) slipped from 53.3 to a seven month low of 52.8. Markets had predicted an increase to 53.8. The services sector also showed signs of slowing as the Services PMI fell by 0.3 points to 52.5. An unexpected drop in new home construction in March amid a cooling of homebuilder confidence (the National Association of Homebuilders’ Housing Market Index dropped from 71 points to 68) added to a sense of a broader moderation in the economy. However, industrial production rose by 0.5% in the three months to March, in line with consensus estimates but above the 0.1% growth over the previous period.
  • The Eurozone economy started the second quarter strongly as the provisional Manufacturing and Services PMI data for April went against expectations of a decline and increased. The manufacturing PMI rose from 56.2 to 56.8 and the services PMI rose from 56 to 56.2. The overall composite index rose from 56.4 to 56.7; the highest level since April 2011. In Germany, the Manufacturing PMI was largely unchanged as it fell 0.1 points to 58.2, remaining near a six year high. An advance reading of the Eurozone consumer confidence survey for April by the European Commission was close to its highest level for nine years. The index rose from -5.0 to -3.6 points which was also above the -4.8 points expected.
  • Economic releases continued to be positive in Japan. The Nikkei Flash manufacturing PMI remained in expansionary territory and increased to 52.8 in April from the previous reading of 52.4 largely due to strong growth in export orders. Japan recorded a trade surplus of ¥614.7bn in March, down from the surplus of ¥813.5bn posted in February but ahead of the estimated ¥608.0bn surplus. Imports rose by 15.8% over the year to March, beating expectations of a 10.0% increase. However, exports outperformed analyst forecasts by a significant margin, rising at 12.0% which was almost twice the forecasted increase of 6.2% over the same period. The robust growth in exports was driven by increases in shipments to China and the US.
  • There was positive economic data emanating from China last week as GDP growth accelerated in the first quarter of 2017. The Chinese economy advanced by 6.9% over the year to March which was above forecasts of growth to remain at 6.8%. Both industrial production and retail sales outperformed expectations, rising by 7.6% and 10.9% respectively over the year. Fixed asset investment over the first quarter, which also came in above expectations at 9.2% compared with the same period last year, supported the higher than expected GDP growth figure.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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