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Aon Retirement and Investment Blog

Weekly Update - 03 April 2018 (UK/Europe)


  • 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 AC World Index rose 1.7% in local currency terms and 2.3% in sterling terms. Japan was the best performing region both in local currency (3.8%) and sterling terms (3.3%) as a weaker yen provided a boost for the export-sensitive equity market over the week. The developed Pacific region (excluding Japan) was the worst performing region both in local currency (-0.7%) and sterling terms (-0.2%) as Australian equities underperformed with the financial sector, in particular, under pressure due to the ongoing Royal Commission enquiry into misconduct in the sector.
  • UK gilt yields fell across all maturities, mirroring movements in other major government bond markets, as investors turned towards safe haven bonds amid elevated equity market volatility. The 10 year UK gilt yield dropped by 10bps to 1.35% and the 20 year UK gilt yield fell by 7bps to 1.69%. The 10 year US treasury yield fell by 9bps to 2.74%. European government bond yields fell across the region, albeit to a lesser degree. The 10 year German bund yield fell by 3bps to 0.49% and the 10 year French government bond yield fell by 4bps to 0.72%.
  • The UK 20 year real yield fell by 7bps to -1.68% and the Over 5 year real yield fell by 5bps to -1.64%. 20 year breakeven inflation remained unchanged at 3.34%.
  • The US high yield bond spread over US treasury yields rose by 5bps to 379bps over the week. The spread of USD denominated EM debt over US treasury yields and the sterling non-gilt spread over government yields (based on the Merrill Lynch index) were unchanged at 303bps and 113bps respectively.
  • The S&P GSCI fell 0.5% in USD terms over the week. The energy sector fell by 0.6% as the price of Brent crude oil decreased by 1.6% to US$69/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.
  • Sterling depreciated against major currencies (except for the yen) over the week. The US dollar appreciated by 0.9% against sterling, ending the week at $1.40/£. The euro strengthened by 0.4% against sterling, finishing the week at €1.14/£. The Japanese yen depreciated by 1.4% against the US dollar, ending the week at ¥106.35/$.
  • 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 labour 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 UK, the final reading for GDP growth over 2017 was confirmed at 1.4%. Consumer confidence unexpectedly improved in March, boosted by an upturn in wage growth and easing inflation. The GfK Consumer Confidence index moved 3 points higher to -7 in March, beating expectations of an unchanged reading of -10. The Nationwide House Price index fell for a second consecutive month in March, dropping by 0.2% despite expectations of a 0.2% increase. February's reading was revised down to -0.4% from -0.3%. Over the year, house prices increased by 2.1%, down from 2.2% previously and below forecasts of 2.6%. The current account deficit narrowed to £18.4 billion in the fourth quarter, down from a revised £19.2 billion previously and significantly below estimates of £24.0 billion.
  • 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.
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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