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Aon Retirement and Investment Blog

Weekly Update - 03 April 2018

MARKET MOVES (Week ending March 31, 2018)


  • Global equity markets rose over the week as fears over global trade war receded slightly after reports of possible trade talks between US and Chinese officials suggested a degree of rapprochement. Encouraging economic data were also supportive, but these tailwinds were kept in check by a sell-off in the technology sector, particularly in the US. Moreover, volatility remains a concern for investors with the Chicago Board Options Exchange's (Cboe) VIX volatility index holding above its long-term average of 20. The MSCI World Index rose 1.6% in USD terms over the week, underperforming the S&P 500 Index, which rose 2.1% over the same period. On a year-to-date basis also, the MSCI World Index has underperformed the S&P 500 Index (-1.2% vs. -0.8%). 
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 Index rose 2.1% whilst the Russell 2000 Index rose 1.3%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (-0.8% vs. -0.1%). Value stocks outperformed Growth stocks over the week (2.6% vs. 1.4%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (2.2% vs. -3.5%).
  • Both the 10 year US Treasury yield and the 30 year US Treasury yield fell by 9bps each to 2.74% and 2.97% over the week.
  • The 20 year TIPS yield fell by 8bps to 0.81% and the 20 year breakeven inflation rate fell by 1bp to 2.04%. 
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields fell by 2bps to 148bps and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 1bp to 116bps. The US high yield bond spread over US treasury yields rose by 5bps to 379bps. The spread of USD denominated EM debt over US treasury yields was unchanged at 303bps.
  • The S&P GSCI fell 0.5% in USD terms over the week. This was led by the 0.6% decline in the energy sector as the price of WTI crude oil decreased by 1.4% to US$65/BBL. Industrial metals increased by 0.2% as copper prices increased by 0.4% to US$6,685/MT. Agricultural prices rose by 0.4% and gold prices fell by 1.7% to US$1,324/ounce.
  • The US dollar appreciated against major currencies over the week. The US dollar strengthened by 0.9% against sterling, ending the week at $1.40/£. The US dollar appreciated by 0.5% against the euro, ending the week at $1.23/€. The Japanese yen weakened by 1.4% against the US dollar, ending the week at ¥106.35/$. 
Economic Releases
  • Although expected to be revised higher, the final reading for annualized US GDP growth over the fourth quarter of 2017 surpassed estimates of 2.7%, as it was revised to 2.9% from 2.5%. Stronger than expected consumer expenditure offset higher import growth. The US Federal Reserve's (Fed) preferred measure of inflation, the Personal Consumption Expenditure (PCE) price index, rose at its fastest pace in over a year; matching consensus forecasts and inching 0.1% higher to 1.6% for the year to February. The combination of robust economic growth and a tight labor market have raised expectations that inflation will move towards the Fed's 2% target. US consumer confidence missed out on three consecutive months of gains as the Conference Board's consumer sentiment index slipped by 2.3 points to 127.7, falling short of a forecasted 1.0 point increase in March.
  • In the Eurozone, the final reading of consumer confidence in March was unchanged at 0.1. The Eurozone Economic Sentiment indicator fell to a six-month low of 112.6 in March, down from 114.2 previously and undershooting analysts forecast of 113.3. In contrast, economic releases in Germany were more positive. Consumer confidence inched up to 10.9, above expectations of a reading of 10.7. The provisional Consumer Price Index (CPI) reading for Germany recorded a 0.4% increase in March, undershooting analyst expectations of a 0.5% increase. This brings annual consumer price inflation in the 12 months to March to 1.6% from 1.4%. Elsewhere, the unemployment claims rate dropped by 0.1% to 5.3% in March, in line with expectations. 
  • In Japan, industrial production rebounded by 4.1% in February following January's disappointing 6.8% decline, but it failed to meet expectations of a 5.0% increase. Retail sales growth similarly missed forecasts of 1.7% growth, rising by only 1.6% in the year to February from a downwardly-revised 1.5% in January. Japan's jobless rate ticked slightly higher to 2.5% in February but less than the estimated rate of 2.6%. The job-to-application ratio fell for the first time since 2012, unexpectedly dropping to 1.58 from 1.59. Analysts had expected a slight improvement to 1.60.
  • The official Chinese manufacturing PMI for March came in higher at 51.5 from 50.3 and above forecasts of 50.6. Growth also accelerated away from the manufacturing sector with the non-manufacturing index rising to 54.6 from 54.4, thereby meeting consensus estimates. Elsewhere, the final reading of China's current account surplus for Q4 2017 inched slightly higher to $62.3bn. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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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