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Aon Hewitt Retirement and Investment Blog

Weekly Update - 29 August 2017

NEW INTELLECTUAL CAPITAL

MARKET MOVES - Week Ending August 25, 2017
Equities
  • Global equity markets generated modest returns in what was a light trading week. Reports of encouraging developments on US tax reforms triggered an initial equity rally but it failed to sustain over the week. Meanwhile, investors were focused on monetary policy guidance from the central bankers’ meeting at Jackson Hole but there was little new information to be garnered from the various speeches. Both the S&P 500 Index and MSCI World Index rose by 0.8%. On a year to date basis, the MSCI World Index has outperformed the S&P 500 Index (13.0% vs. 10.6%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 Index rose by 1.5% whilst the S&P 500 index rose by 0.8% over the week. On a year to date basis, the S&P 500 Index has outperformed Russell 2000 Index (10.6% vs. 2.3%). Both Value stocks and Growth stocks rose by 0.8% last week as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (16.2% vs. 5.5%).
Bonds
  • Both the 10 year US treasury yields and the 30 year US Treasury yields fell by 3bps, ending the week at 2.17% and 2.75% respectively.
  • The 20 year TIPS yield fell by 2bps to 0.56% over the week and the 20 year breakeven inflation rate fell by 2bps to 1.70%.
  • The spread on the Barclays Capital Long Credit index over Treasury yields remained flat while the Merrill Lynch US Corporate Index fell by 1bp to 114bps over the week. The US high yield bond spread over US treasury yields fell by 9bps to 389bps. The spread of USD denominated EM debt over US treasury yields finished the week 4bps lower at 302bps.
 Commodities
  • The S&P GSCI fell by 0.4% in USD terms over the week. The energy sector fell by 0.7% as the price of WTI crude oil decreased by 1.9% to $48/BBL. Industrial metals rose by 1.1% as copper prices increased by 3.0% to $6,649/MT. Agricultural prices fell by 0.6% and gold prices fell by 0.2% to $1,293/ounce.  
 Currencies
  • The US dollar depreciated against major currencies except for the yen. The US dollar depreciated by 0.2% against sterling and 1.0% against the euro ending the week at $1.29/£ and $1.19/€ respectively. The Japanese yen depreciated by 0.4% against the US dollar, ending the week at ¥109.26/$.
 Economic Release
  • Economic releases were mixed in the US. Employment claims were broadly in line with expectations, with initial jobless claims at 234k, versus 238k expected and continuing claims came in at 1,954k, against 1,950k expected. The Markit manufacturing PMI reported for August was lower than expected at 52.5 against 53.5; however the services PMI increased 2.2pts to 56.9, higher than the 55.0 expected and its highest level since April 2015. The overall composite index ticked up to 56.0 from 54.6 previously. New home sales for July fell 9.4% to 570k, undershooting the predicted and previous 620k. Existing home sales fell 1.3% over the month of July, however remained up 2.1% year-on-year. Elsewhere, MBA mortgage applications fell 0.5% last week, from the 0.1% increase previously. Core durable goods orders (ex-transportation) for July grew slightly above analyst forecasts at 0.5%, while the capital goods new orders (ex-aircraft) grew as expected at 0.4%.
  • In the Eurozone, the Markit Composite PMI for August came in at 55.8, slightly above the 55.5 expected. As did both of the Manufacturing and Services PMIs for the Eurozone; with reported readings of 57.4 and 54.9 respectively. Consumer confidence for the Eurozone for August unexpectedly increased, up to -1.5 from -1.7 previously and compared with expectations of -1.8. However, the ZEW expectations index for August fell to 29.3 from 35.6, predominantly driven by a decrease in the expectations index for Germany. August’s reading for Germany disappointed, at a reading of 10 versus 15 expected and 17.5 previously, partly impacted by concerns that the rising Euro will weigh on the economy as well as the widening diesel car scandal.
  • Japanese economic data was broadly positive in what was a light week for economic releases. Headline annual consumer price inflation was unchanged at 0.4% in July. Core CPI, which excludes fresh food and energy, rose by 0.1% over the same period, and met consensus estimates. Growth in the Japanese manufacturing sector picked up with the preliminary Nikkei manufacturing PMI rising from 52.1 to 52.8 in August.
  • There was very little in the way of data releases for China over the week. Reported Industrial profits for July grew 16.5% year-on-year, decreasing from the previous month's 19.1% growth.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
Click here for index descriptions.


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