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Aon Retirement and Investment Blog

Weekly Update - 07 August 2017


MARKET MOVES - Week Ending August 4, 2017

  • Global equity markets generated positive returns over the week supported by strong corporate earnings and broadly positive economic data. The MSCI World index rose by 0.4% over the week, outperforming the S&P 500 index which rose by 0.2% over the same period. On a year to date basis, the MSCI World index has outperformed the S&P 500 (14.1% vs. 11.9%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 index rose by 0.2% whilst the Russell 2000 index fell by -1.2% over the week. On a year to date basis, the S&P 500 has outperformed the Russell 2000 (11.9% vs. 4.8%). Value stocks outperformed Growth stocks last week (0.4% vs. 0.0%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (17.1% vs. 7.2%).
  • US Treasury yields spiked higher towards the end of the week supported by a stronger than expected increase in non-farm payrolls. However, the 10 year US Treasury yield fell by 3bps and the 30 year US Treasury yield fell by 5bps, ending the week at 2.26% and 2.84% respectively.
  • The 20 year TIPS yield fell by 1bp to 0.62% over the week while the 20 year breakeven inflation rate fell by 2bps to 1.74%.
  • The Barclays Capital Long Credit index spread over Treasury yields rose by 2bps to 153bps and the Merrill Lynch US Corporate index rose by 1bp to 109bps over the week. The US high yield bond spread over US Treasury yields rose by 4bps to 363bps. The spread of USD denominated EM debt over US Treasury yields finished the week 4bps lower at 301bps. 
  • The S&P GSCI fell by 0.5% in USD terms over the week. The energy sector fell by 0.2% as the price of WTI crude oil decreased by 0.3% to $50/BBL. Industrial metals rose by 0.7% as copper prices increased by 0.8% to $6,348/MT. Agricultural prices fell by 2.9% and gold prices fell by 0.8% to $1,258/ounce.
  • The US dollar had a mix performance against the major currencies over last week. The US dollar appreciated by 0.6% against sterling, ending the week at $1.30/£ while remaining flat against the euro, to finish the week at $1.18/€. The Japanese yen appreciated by 0.1% against the US dollar, ending the week at ¥110.89/$.
Economic Releases
  • In the US, the manufacturing sector continues to expand albeit at a slower pace as the Institute of Supply Management's (ISM) manufacturing index showed a fall from a three year high of 57.8 to 56.3, which was slightly below expectations of 56.5. The US Federal Reserve's (Fed) preferred yardstick for inflation, the change in the core Personal Consumption Expenditures price index, remained at 1.5% in the year to June; below the Fed's target of 2%. Meanwhile, US job creation continues to be strong as the US economy added 209k jobs in July, above consensus forecasts of 180k jobs while June's job numbers were upwardly revised to 231k from 222k. As expected, the unemployment rate fell to 4.3% from 4.4%; the lowest level since March 2001.
  • Eurozone releases over the week were largely positive, with GDP growth of 2.1% for the year to June. The pace of economic expansion matched analyst forecasts while moving higher from 1.9% in the previous period. Eurozone unemployment, long a scourge to policymakers, fell to its lowest level in eight years. Unemployment fell to 9.1% in June from 9.2%. Yet, there remains substantial slack in the labor market which continues to absorb inflationary pressures with annual consumer price inflation, as measured by the Consumer Price Index, remaining at 1.3%. There was further positive news as retail sales outperformed expectations of 2.5% growth and increased by 3.1% in the year to June; up from the 2.4% increase seen in the previous period. German retail sales increased by 1.1% over June, above both forecasts of 0.2% growth and the previous increase of 0.5%. Unemployment in Germany was unchanged at 5.7%, as expected.
  • Japanese economic data was fairly lackluster. Wage growth data disappointed due to a fall in bonus payments as labor cash earnings fell by 0.4% in the year to June against a forecasted increase of 0.5%. Real wages, which takes inflation into consideration, fell by its fastest rate in 24 months; falling by 0.8% over the year to June. The services PMI fell to 52.0 from 53.3 while the finalized manufacturing PMI was marginally revised downwards to 52.1 from 52.2. However, the provisional release for annual industrial production growth improved from -3.6% in May to 1.6% in June, which was ahead of the estimated 1.5% increase.
  • In China, PMI releases painted a fairly mixed picture for the economy. While still being in expansionary territory, the official manufacturing and non-manufacturing PMIs moved lower indicating a deceleration for both sectors. The manufacturing PMI slipped to 51.4 from 51.7 while the non-manufacturing PMI fell from 54.9 to 54.5. Conversely, the Caixin manufacturing PMI, which focuses more on small and mid-sized businesses, unexpectedly rose over July, moving to 51.1 from 50.4.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
Click here for index descriptions.

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