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Aon Retirement and Investment Blog

Weekly Update - 22 August 2017


  • Alternative Premia, Alternative Price. This research discusses a range of strategies that offer a premium for taking unpopular risks or for exploiting persistent market anomalies. The research also details risks and areas of consideration. As with any active investment, we believe manager selection is critical.
MARKET MOVES - Week Ending August 18, 2017
  • Global equities had a difficult week with noticeable differences between regional returns. Initially, equity markets rose as tensions in the Korean Peninsula eased. However, doubts over Trump administration’s pro-growth agenda due to the disbandment of business advisory councils and the Spanish terror attack weighed on equities later in the week. The S&P 500 index fell by 0.6% underperforming MSCI World index which fell by 0.3%. On a year to date basis, the MSCI World index has outperformed the S&P 500 index (12.1% vs. 9.8%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 index fell by  -1.2% whilst the S&P 500 index fell by -0.6% over the week. On a year to date basis, the S&P 500 index has outperformed the Russell 2000 index (9.8% vs. 0.8%). Value stocks underperformed Growth stocks last week (-0.8% vs. -0.4%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (15.3% vs. 4.7%).
  • Minutes from the last Federal Reserve meeting showed some policymakers were becoming increasingly concerned with low inflation which limited the upward impetus in US Treasury yields last week .The 10 year US Treasury yield rose by 1bp to 2.19% after reaching 2.27% in the middle of the week. The 30 year US Treasury yield fell by 1bp, ending the week at 2.78%.
  • The 20 year TIPS yield rose by 3bps to 0.58% over the week while the 20 year breakeven inflation rate fell by 3bps to 1.71%.
  • Credit spreads fell over the week. The spread on the Barclays Capital Long Credit index over Treasury yields fell by 2bps to 160bps while the Merrill Lynch US Corporate index fell by 1bp to 115bps over the week. The US high yield bond spread over US Treasury yields fell by 2bps to 398bps. The spread of USD denominated EM debt over US Treasury yields closed 7bps lower at 306bps.
  • The S&P GSCI fell by 0.6% in USD terms over the week. The energy sector fell by 0.3% as the price of WTI crude oil decreased by 0.5% to $49/BBL. Industrial metals rose by 2.0% with copper prices increasing by 1.1% to $6,452/MT. Agricultural prices fell by 2.7% whilst gold prices rose by 0.7% to $1,296/ounce. 
  • The US dollar appreciated against the euro and sterling, but depreciated against the yen. The US dollar appreciated by 0.9% against sterling and 0.3% against the euro ending the week at $1.29/£ and $1.18/€ respectively. The Japanese yen appreciated by 0.3% against the US dollar, ending the week at ¥108.81/$.
 Economic Release
  • Economic releases were positive in the US. After decreasing for three consecutive months, consumer confidence as measured by the University of Michigan Consumer Sentiment index rebounded from 93.4 to 97.6, beating index projections of 94.0. Advance retail sales also improved over July, advancing by 0.6% and outperforming expectations of a 0.3% increase. June's retail sales growth was revised up from -0.2% to 0.3%. Industrial production continued to increase, rising by 0.2% in July but narrowly falling short of expectations of 0.3% growth. The number of people claiming unemployment benefits fell to a six-month low of 232k, below forecasts of 240k and the previous week's figure of 244k.
  • Final July inflation figures for the Eurozone hit expectations with headline CPI at 1.3% year-on-year, unchanged from June. June industrial production data was slightly lower than expected, decreasing 0.6% month-on-month, from the previous 1.3% increase. The preliminary estimate for Q2 GDP for the region was 2.2% annualised, compared with the previous quarter’s reading of 2.1%. The German economy grew at its fastest yearly pace since 2014, expanding by 2.1%, above estimates of 1.9% and up from the previous reading of 2.0%. The Eurozone trade balance for June showed a bigger than anticipated increase up to €22.3bn from the previous downwardly revised figure of €19.0bn.
  • The Japanese economy grew at an annualized rate of 4.0% in Q2 2017 (the sixth consecutive quarter of economic growth), far above estimates of 2.5%. Domestic demand continued to pick up, increasing by 0.9% over the quarter. Business spending rose by 2.4%, beating consensus estimates of an increase of 1.2%. The final reading for industrial production growth in June was revised up from 1.6% to 2.2%. The trade balance fell to a surplus of ¥418.8bn in July from a revised trade surplus of ¥439.8bn in the previous month, but was still above expectations of a ¥327.1bn surplus.
  • In China, economic data was largely disappointing with a number of releases for July missing their respective forecasts. Year-on-year industrial production slowed to 6.4% from 7.6%. Over the same period, retail sales slowed by more than expected to 10.4% from 11.0%.Meanwhile, new Chinese loans fell to their lowest level in eight months amid property curbs that are cooling interest in new mortgages. ¥825.5bn of new loans was issued in July, above forecasts of ¥800.0bn but below June's loan issuance of ¥1540.0bn.

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