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Aon Hewitt Retirement and Investment Blog

Weekly Update - 11 December 2017

NEW INTELLECTUAL CAPITAL

  • How Do Public Pension Plans Impact Credit Ratings? This paper details how public pension plans influence credit ratings as well as the relationship between credit ratings and borrowing costs for public entities.  Additionally, the paper outlines effective actions that plan sponsors can take today to improve the impact a pension plan has on its locality’s credit rating.
  • Watch our short video on Responsible Investment! To help answer some essential questions about Responsible Investing (RI), we’ve created a short animated video blog. In it, you’ll find information on the four main types of RI, including Environmental, Social and Governance (ESG) integration, Impact Investing, Socially Responsible Investing (SRI), and Mission Related Investing, as well as how responsible investing may potentially enhance returns, reduce volatility, or allow investors to “do good while doing well.
MARKET MOVES - Week Ending December 08, 2017
Equities
  • Global equity markets moved higher in a week where significant progress was made in coalition talks in Germany, Brexit talks between the UK and Europe, and the US tax reform bill. The MSCI World Index rose by 0.2% over the week, underperforming S&P 500 which rose by 0.4% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (21.2% vs. 20.7%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose by 0.4% whilst Russell 2000 fell 1.0% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (20.7% vs. 13.5%). Growth stocks marginally outperformed Value stocks last week (0.4% vs. 0.3%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (27.6 vs. 14.3%.).
Bonds
  • Both the 10 year US Treasury yields and the 30 year US Treasury yields rose by 1bp each to 2.38% and 2.77%  respectively, supported by an encouraging employment report.
  • The 20 year TIPS yield fell by 1bp 0.63% whilst the 20 year Breakeven rose by 2bps to 1.79%.
  • The Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 143bps and the Merrill Lynch US Corporate Index spread fell by 1bp to 102bps.
  • The US high yield bond spread over US treasury yields was unchanged at 363bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp lower at 290bps.
Commodities       
  • The S&P GSCI fell by 2.1% in USD terms over the week despite strong Chinese trade and manufacturing data. The energy sector was 1.6% lower over the week with the price of WTI crude oil falling 2.1% to US$57/BBL. Industrial metals fell by 3.8% with copper prices dropping by 4.0% to US$6,537/MT. Agricultural prices slid back by 2.7% while gold prices slipped by 2.7% to US$1,248/ounce.
Currencies
  • The US dollar appreciated against all major currencies over the week. The US dollar appreciated by 0.8% against sterling, ending the week at $1.34/£. US dollar strengthened by 1.0% against the euro, finishing the week at $1.18/€. The Japanese yen fell by 0.7% against the US dollar, ending the week at ¥113.54/$.
Economic Releases
  • Although down from October’s release of 244k new jobs, the US labour market continued its impressive run of monthly job gains as November’s non-farm payrolls showed 228k jobs were added over the month. Moreover, the reading was above consensus estimates of 195k. As expected, the unemployment rate in the US was unchanged at 4.1%. The tight labour market has resulted in faster wage growth as average hourly earnings rose at a pace of 2.5% over the year to November; up from a downwardly revised 2.3% in the previous month but falling short of an expected 2.7%. Consumer confidence, as measured by the University of Michigan’s Consumer Sentiment index, dipped in December to 96.8 from 98.5. Analysts had forecasted a slight uptick in confidence to 99.0.
  • In the Eurozone, year-on-year GDP growth for Q3 was revised upwards by 0.1% to 2.6%. However, data releases for the month of October were generally disappointing. Retail sales fell by 1.1% over October, underperforming expectations of a 0.7% fall. Elsewhere, industrial production in Germany was 1.4% lower over October, against forecasts of a 0.9% increase. Germany's trade balance in October also came in below expectations of €21.9 billion at €18.9 billion. The Eurozone Sentix Investor Confidence reading for December moved to 31.1 from 34.0 previously. German factory orders delivered a positive surprise, increasing by 0.5% over October against expectations of a modest 0.2% fall.
  • The Japanese economy grew at an annualised rate of 2.5% over the third quarter of 2017, up from preliminary estimates of 1.4% and above consensus estimates of 1.5%. The upward revision was largely thanks to business investment over the quarter exceeding initial forecasts. Although remaining in expansionary territory, the services PMI fell to 51.2 in November from 53.4. Wage growth data was mixed as labour cash earnings grew only by 0.6% for the year to October against a forecasted increase of 0.8%. However, real wages (which takes inflation into consideration) met expectations and rose by 0.2% over the same period.
  • In China, inflation decelerated as the Consumer Price Index (CPI) rose by 1.7% for the year to November, down from the 1.9% increase seen in October. Both export and import growth gathered pace in the year to November while the trade surplus widened to $40.21bn from $38.06bn. Imports grew by 17.7% in the year to November against forecasts of 13.0%. Export growth was particularly encouraging, hitting an eight-month high of 12.3% against expectations of 5.3%.
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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