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Aon Retirement and Investment Blog

Weekly Update - 09 April 2018

MARKET MOVES (Week ending April 8, 2018)


  • Global equities continued to be under pressure as concerns over escalating trade tension between the US and China dominated markets. The US-China trade dispute entered another phase with President Donald Trump threatening to impose tariffs on an additional $100bn of Chinese imports increasing the likelihood of Beijing reciprocating with retaliatory tariffs on US goods. The MSCI World Index fell 0.6% in USD terms over the week, outperforming the S&P 500 Index, which fell 1.4% over the same period. On a year-to-date basis also, the MSCI World Index has outperformed the S&P 500 Index (-1.8% vs. -2.1%). 
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 Index fell 1.4% whilst the Russell 2000 Index fell 1.0%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (-2.1% vs. -1.1%). Value stocks outperformed Growth stocks over the week (-1.0% vs. -1.6%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (0.5% vs. -4.5%).
  • The 10 year US Treasury yield rose by 4bps to 2.78% and the 30 year US Treasury yield rose by 5bps to 3.02% despite the news that US Job growth data have missed estimates.
  • The 20 year TIPS yield rose by 2bps to 0.83% and the 20 year breakeven inflation rate rose by 2bps to 2.06%. 
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields rose by 2bps to 150bps whilst the Bank of America Merrill Lynch US Corporate Index credit spread fell by 2bps to 114bps. The US high yield bond spread over US treasury yields fell by 15bps to 364bps over the week. The spread of USD denominated EM debt over US treasury yields fell by 7bps to 295bps.
  • The S&P GSCI fell 2.1% in USD terms over the week. The energy sector fell by 3.6% as the price of WTI crude oil decreased by 4.4% to US$62/BBL. Industrial metals increased by 0.7% as copper prices increased by 0.3% to US$6,703/MT. Agricultural prices rose by 1.2% and gold prices rose by 0.3% to US$1,328/ounce.
  • The US dollar appreciated against major currencies over the week with the exception of sterling. The US dollar weakened by 0.4% against sterling, ending the week at $1.41/£. The US dollar appreciated by 0.3% against the euro, ending the week at $1.23/€. The Japanese yen weakened by 0.7% against the US dollar, ending the week at ¥107.11/$. 
Economic Releases
  • Economic data in the US was largely disappointing compared with consensus estimates. The Institute of Supply Management's (ISM) manufacturing index, a forward-looking gauge of economic activity, slipped from 60.8 and moved to 59.3; failing to meet expectations of 59.6 and indicating deceleration in the sector. All sub-components of the headline ISM index moved lower with the exception of the ISM Prices Paid index which rose 3.9 points to a seven-year high of 78.1. The effects of tariffs on steel and aluminum imports were thought to have led to panic-buying and a short-term boost to prices. The increase in non-farm payrolls along with the unemployment rate also failed to meet consensus estimates with only 103k jobs being added to the economy, lower than February's upwardly revised 326k jobs and expectations of 185k while the US unemployment rate stayed at 4.1%. However on the positive side, wage growth data was encouraging as average hourly earnings picked up to 2.7% for the year to March from 2.6%.
  • In the Eurozone, data releases over the week were largely in line with expectations. Final PMIs for March were broadly in line with expectations. The manufacturing PMI came in as expected at 56.6, down slightly from December's record high. The final German PMI readings for March were a little disappointing with the manufacturing and services PMIs both moving lower, moving to 58.2 and 53.9 respectively from 58.4 and 54.2. Inflation data for the Eurozone in March showed headline inflation rising as expected to 1.4% on an annual basis from 1.1% previously. Core inflation, however, remained at 1.0% year-on-year, marginally under expectations. Industrial production data for Germany in February was disappointing, declining 1.6% over the month from the previous 0.1% growth and short of analyst forecasts of 0.2% growth. Retail sales in Germany failed to meet expectations of a 0.7% increase, declining a further 0.7% over February after the previous month's 0.3% decrease.
  • Japanese economic data had a weaker tone. The Bank of Japan’s Q1 2018 Tankan survey revealed a slightly pessimistic outlook for the Japanese manufacturing sector due to the strength in the yen. The closely watched Tankan large manufacturer’s index fell to 24 from the previous reading of 26. Meanwhile, labor cash earnings rose by 1.3% for the year to February against a forecasted increase of 0.5%. However, real wages fell by a further 0.5% over the same period after decreasing by 0.6% previously. The Nikkei services PMI fell to 50.9 from 51.7, recording the slowest growth in the sector in 17 months.
  • The Caixin manufacturing PMI, which focuses more on small and mid-sized Chinese businesses, moved to 51.0 from 51.6 and below expectations of 51.7. Similarly, the services sector also decelerated with the services PMI falling by 0.9 points to 52.3.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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