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Aon Retirement and Investment Blog

Weekly Update - 30 April 2018

NEW INTELLECTUAL CAPITAL

Key Topics for Non-Profit Organizations in 2018.
This paper identifies and provides context on key topics we expect to be important for non-profit fiduciaries in 2018. 

MARKET MOVES (Week ending April 29, 2018)

  • Global equity markets edged higher over the week, supported by stronger than expected corporate earnings releases. The European Central Bank and the Bank of Japan both voted to keep their monetary policy unchanged. The MSCI World Index fell 0.1% over the week, marginally underperforming the S&P 500 Index, which was broadly unchanged over the same period. On a year-to-date basis also, the MSCI World Index has marginally outperformed the S&P 500 Index (0.5% vs. 0.4%).
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 Index fell by 0.5% whilst S&P 500 Index was broadly unchanged. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (1.7% vs. 0.4%). Value stocks outperformed Growth stocks over the week (0.3% vs. -0.4%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (3.3% vs. -2.3%).
Bonds
  • The 10 year US treasury yield was unchanged at 2.96% after touching the 3.0% mark in a week in which Q1 2018 GDP data indicated a slowdown in the economy. The 30 year US Treasury yield fell by 1bp to 3.13%.
  • The 20 year TIPS yield fell by 1bp to 0.87% and the 20 year breakeven inflation rate was unchanged at 2.16%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over Treasury yields rose by 3bps to 152bps and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 2bps to 112bps. The US high yield bond spread over US treasury yields rose by 11bps to 344bps over the week. The spread of USD denominated EM debt over US treasury yields rose by12bps to 307bps.
Commodities       
  • The S&P GSCI fell by 0.1% in USD terms over the week. The energy sector rose by 0.3% despite the price of WTI crude oil falling by 0.4% to US$68/BBL. Industrial metals declined by 5.6% as copper prices fell by 2.0% to US$6,797/MT. Agricultural prices rose by 2.5% whilst gold prices fell by 1.1% to US$1,322/ounce.
 Currencies
  • The US dollar appreciated against major currencies over the week. The US dollar strengthened by 1.6% against sterling, ending the week at $1.38/£. The US dollar appreciated by 1.4% against the euro, ending the week at $1.21/€. The Japanese yen weakened by 1.3% against the US dollar, ending the week at ¥109.09/$.
Economic Releases
  • The first reading for first quarter GDP growth indicated a slowdown in the US economy with year-on-year growth slowing to 2.3% from 2.9%. Although GDP growth came in above expectations of 2.0%, weakness in both consumer and business spending were enough to trigger a slowdown in the US economy, although last year's tax cuts are likely to make their presence felt in future quarters. We caught a glimpse of this positive influence with the increase in the forward-looking manufacturing Purchasing Managers' Index (PMI) which unexpectedly rose by 0.9 points to 56.5; above the 55.2 anticipated by analysts. The Conference Board's Consumer Confidence index also unexpectedly increased in April, rising from a downwardly revised 127.0 to 128.7. Finally, the number of Americans filing unemployment benefits declined to the lowest level in more than 48 years as initial jobless claims dropped by a seasonally-adjusted 24k to 209k. 
  • In the Eurozone, the European Central Bank kept all three interest rates unchanged. Meanwhile, preliminary PMI data for April was softer than expected for the manufacturing sector, as the index declined to 56.0 from 56.6 in March and fell just shy of the forecasted 56.1. The decrease marked the second consecutive month of decline. Economic confidence in the Eurozone increased by 0.1 point to 112.7 and industrial confidence jumped from 6.4 to 7.1, beating expectations of 5.8. In Germany, the preliminary manufacturing PMI reading of 58.1 beat forecasts of 57.5 but could not arrest the downward trend seen since the start of the year. The IFO Business Climate reading for April was slightly behind expectations measuring 102.1 from 103.2 previously and 102.8 forecasted. Both of the IFO expectations and current assessment readings for Germany moved slightly lower and missed market forecasts measuring 98.7, versus 99.5 and 105, versus 106 previously.
  • In Japan, growth in industrial production slowed to 1.2% in March, down from the 2.0% increase in February but above expectations of a 0.5% increase. Retail sales missed forecasts of 1.5% growth, rising by only 1.0% in the year to March and slowing from an upwardly-revised growth rate of 1.7% in February. Japan's jobless rate remained unchanged at 2.5% in March. The Japanese manufacturing sector improved in April, with the preliminary Nikkei PMI manufacturing index rising to 53.3 from the previous month’s reading of 53.1. 
  • In China, industrial profits grew at the slowest pace in 21 months as it rose by just 3.1% in the 12 months to March. The latest reading was significantly lower than the 10.8% increase recorded in February underscored by weaker gains made in the manufacturing sector and declining profits for ferrous metals producers.
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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