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Aon Retirement and Investment Blog

Weekly Update - 18 December 2017


  • U.S. Discount Rate Update. Average discount rates remained level in November, as equities continued to rally and Treasury rates rose slightly at short and intermediate durations. In early December, rates have decreased by 7 basis points through Friday, December 8th. The average plan sponsor’s discount rate has now decreased by 52 basis points in 2017.
  • CIO Quarterly Newsletter. A quarterly look at market conditions from our North American Chief Investment Officer.
MARKET MOVES - Week Ending December 15, 2017
  • Global equity markets edged higher again last week as the US Federal Reserve hiked interest rates by 25bps to a range of 1.25%-1.50%. Both the Bank of England and the European Central Bank voted to keep their monetary policy unchanged. A string of solid manufacturing data across the major economies supported markets over the week as well. The MSCI World Index rose by 0.6% over the week, underperforming S&P 500 which rose by 0.9% over the same period. On a year to date basis, MSCI World performed at par with S&P 500 (21.9% vs. 21.9%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose by 0.9% whilst Russell 2000 rose by 0.6% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (21.9% vs. 14.2%). Growth stocks outperformed Value stocks last week (1.1% vs. 0.7%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (29.0% vs. 15.1 %).
  • The 10 year US Treasury yield fell by 2bps to 2.35% and the 30 year US Treasury yield fell by 8bps to 2.69%.
  • The 20 year TIPS yield fell by 4bps to 0.59% whilst the 20 year Breakeven remained unchanged at 1.79%.
  • The Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index spread fell by 2bps each to 141bps and 100bps respectively.
  • The US high yield bond spread over US treasury yields rose by 1bp to 364bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 288bps.
  • The S&P GSCI fell by 0.1% in USD terms over the week. The energy sector fell by 0.8% despite the price of WTI crude oil rising 0.2% to US$57/BBL. Industrial metals rose by 4.0% as copper prices increased 4.9% to US$6,855/MT. Agricultural prices fell by 1.0% whilst gold prices rose 0.5% to US$1,255/ounce. 
  • The US dollar depreciated against major currencies (except for the pound) over the week. The US dollar appreciated by 0.4% against sterling, ending the week at $1.33/£. US dollar weakened by 0.1% against the euro, finishing the week at $1.18/€. The Japanese yen rose by 0.8% against the US dollar, ending the week at ¥112.66/$.
Economic Releases
  • In the US, consumer price inflation grew 2.2% in the year to November, in line with expectations and up from 2.0% previously. Excluding the more volatile food and energy components, core CPI increased by 1.7% year-on-year, marginally less than the previous reading of 1.8%. Elsewhere, the Markit Services PMI came in below expectations at 52.4 versus 54.7 expected. Despite the Manufacturing PMI moving higher to 55, from 53.9 the composite reading fell 1.5 points to 53. Retail sales data for November was encouraging, increasing 0.8% month-on-month, beating the 0.3% growth expected and last month’s upwardly revised reading of 0.5%. Retail sales excluding autos increased 1.0% over November, again beating expectations of 0.4% growth.
  • In Europe, the Eurozone Manufacturing PMI estimate for December beat expectations at 60.6, up from 60.1 previously. The Services PMI was also up from 56.2 to 56.5 which resulted in the Composite PMI increasing to 58.0, from 57.5 previously. The December ZEW survey for economic expectations was slightly below the previous reading at 29.0, from 30.9 previously. In Germany, the ZEW survey for current situations was above market expectations of 88.7 at 89.3, but the expectations component of the survey was slightly below the market at 17.4, against 18 expected. Industrial production in Europe was up 0.2% in October, ahead of forecasts of flat growth. The final German consumer price inflation reading for November was unchanged at 0.3% month-on-month and 1.8% year-on-year. The October trade surplus for the Eurozone narrowed to €19.0bn from expectations of €24.3bn.
  • The Japanese economic data was encouraging for the week. The Bank of Japan’s Q4 2017 Tankan survey revealed an optimistic outlook for the Japanese manufacturing sector, reaching its strongest level in eleven years. The Tankan large manufacturer’s index rose to 25 from the previous reading of 22. Meanwhile, the preliminary Nikkei manufacturing PMI rose from 53.6 to 54.2 in December, the highest reading since February 2014. Core machine orders rebounded over October, rising by 5.0%, exceeding expectations of a 2.9% increase.
  • In China, industrial production growth slipped to 6.1% for the year to November, down from 6.2% in the previous month. Meanwhile, urban fixed asset investment met expectations and grew by 7.2% for the year to November, down from 7.3% seen in October. Both indicators support signs of a modest deceleration in the Chinese economy. Retail sales grew 10.2% in the year to November (up from 10.0%previously), but fell marginally short of expectations.  
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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