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Aon Retirement and Investment Blog

Weekly Update - 3 December 2018


  • Corporate Pension Liability Hedging Views 10-31-2018This update from the U.S. practice provides corporate pension liability hedging views as of October 31, 2018.
  •  Legal Consulting & Compliance Quarterly UpdateThe Retirement Legal Consulting & Compliance practice is pleased to present its Quarterly Update of recent legal developments and consulting opportunities for the fourth quarter of 2018.
  • 2019 Global Medical Trend Report. Join us for this webinar to discuss how employers can tackle rising health care costs.  Thursday, December 6th – 2:00 PM ET.
  • Top Year-end Issues Facing Plan Sponsors. Join us for this webinar where Aon’s Retirement practice leaders will discuss current and emerging issues that plan sponsors will need to manage through as 2018 year-end approaches, including:
    • Capital market and accounting issues
    • Developments in executive compensation and risk management
    • Implications of the mid-term elections and benefits legislation
    • Pension settlements and other strategic considerations
MARKET MOVES (Week ending December 2, 2018)
  • Global equity markets rose over the week. Escalations in US-China trade tensions came to a temporary halt at the G20 summit. The US president Donald Trump agreed to delay increasing tariffs on $200 billion worth of Chinese imports for 90 days to allow further negotiations to continue. In return, China agreed to increase imports of agricultural, energy and other products to reduce its trade surplus with the US. 
  • The S&P 500 index rose by 4.9%, outperforming the MSCI World index which rose by 3.4%. The heavily-weighted Information Technology sector was the best performer, gaining 6.1% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (5.1% vs. -0.7%).
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 4.9% and the Russell 2000 index rose by 3.0%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (5.1% vs.1.0%). Growth stocks rose by 5.9% and Value stocks rose by 3.9% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.4% vs 2.2%). 
  • The 10-year US treasury yield fell by 3bps to 3.01% and the 30-year US treasury yields rose by 1bps to 3.31%. The US Federal Reserve chair Jerome Powell suggested that US interest rates are just below their ‘neutral level’ (the level which would neither stimulate nor hinder economic growth), in contrast to his speech in October where he said rates were ‘a long way’ from neutral. The 20-year TIPS yield fell by 3bp to 1.15% and the 20-year breakeven rose by 1bp to 2.04%.    
  • The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 5bps to 184bps and the Bank of America Merrill Lynch US Corporate Index rose by 7bps to 145bps. The US high yield bond spread over US treasury yields remained unchanged at 429bps, following the sharp rise in spreads in mid-November. The spread of USD denominated EM debt over US treasury yields fell by 2bps to 396bps over the week.
  • The S&P GSCI rose by 0.8% in USD terms over the week. The energy sector rose by 0.8% as the price of WTI Crude oil rose by 1.0% to US$51/BBL Industrial metals rose by 0.5% as copper prices rose by 0.5% to US$6,238/MT. Agricultural prices rose by 1.9% and gold prices fell by 0.5% to US$1,218/Oz.  
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 0.4% against sterling, ending the week at $1.28/£. The US dollar appreciated by 0.2% against the euro, finishing the week at $1.13/€. The US dollar appreciated by 0.7% against the Japanese yen, ending the week at ¥113.55/$. The US dollar appreciated by 0.4% against the Canadian dollar, ending the week at C$1.33/$.  
Economic Releases
  • In the US, consumer confidence (as measured by the Conference Board's Consumer Confidence index) met expectations and fell by 2.2 points to 135.7 from 137.9. This was largely driven by a 4.1 point decline in the underlying Expectations index which offset a 0.8 point increase in the present situation index. Nonetheless, consumer confidence remains at very high levels. The Federal Reserve's preferred measure of inflation, the core Personal Consumption Expenditure price index, slowed to 1.8% (year-on-year) from 1.9%. The second reading for third quarter GDP growth was unchanged at 3.5%; though the New York Fed Staff's 'Nowcast' currently estimates that fourth quarter growth will slow to 2.5%. For a fifth straight month the US trade deficit has risen with the provisional reading of the goods trade balance widening to -$77.2bn from -$76.3bn; narrowly above consensus estimates of -$77.0bn. 
  • In the Euro Area, the provisional reading for November CPI inflation slowed in line with expectations to 2.0% from 2.2%. Similarly, core CPI inflation unexpectedly slowed from 1.1% to 1.0%. The Euro Area unemployment rate remained unchanged for the fourth consecutive month at 8.1% in October, failing to meet expectations of a fall to 8.0% as the number of unemployed people rose slightly. Despite the apparent wave of negative releases, the European Commission's economic sentiment indicator surpassed analyst forecasts and only slipped by 0.2 points to 109.5, while its industrial sentiment indicator rose by 0.4 points to 3.4. In Germany, the IFO Business Climate index fell by 0.9 points to 102.0 in November as the indicators for both current conditions (105.4 from an upwardly revised 106.1) and business expectations (98.7 from 99.7) fell.
  • Based on preliminary data, Japanese industrial production rebounded by 2.9% in October; significantly outpacing forecast growth of 1.2% and recovering from September’s 0.4% decline. Retail sales rose by 1.2% in October from the revised 0.1% growth recorded in September. However, Japan’s labour market unexpectedly weakened as the jobless rate for October inched slightly higher to 2.4%, against forecasts of it remaining at 2.3%. The job-to-applicant ratio inched lower to 1.62 from 1.64. The consumer confidence index in November unexpectedly ticked lower to 42.9 from 43.0, against expectations of an increase to 43.2. 
  • In China, the official Chinese manufacturing PMI for November fell to 50.0 (indicating no growth in the sector) from 50.2, the weakest level in over two years as new orders slowed further. The official non-manufacturing index fell to 53.4 from 53.9 over the month due to a sharp slowdown in construction sector despite of government increasing infrastructure spending. The Caixin manufacturing PMI, which focuses more on small and mid-sized Chinese businesses, edged up to 50.2 in November against expectations of it remaining at 50.1. Against a backdrop of heightened trade tensions, industrial profit growth slowed for a sixth consecutive month to 3.6% over the year to October, down from the previous reading of 4.1%.
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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