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Aon Hewitt Retirement and Investment Blog

Weekly Update - 05 February 2018

NEW INTELLECTUAL CAPITAL

  • 2018 Aon Compliance Calendar – Significant U.S. Compensation and Benefit Due Dates. Aon is pleased to present its 2018 Compliance Calendar to assist with identifying significant compensation and benefit due dates for your retirement and health and welfare plans. This calendar is based on a January 1 through December 31 ERISA calendar plan year and includes due dates for notice distributions, plan disclosures, and various plan-related regulatory filings, along with certain items that are date-specific.
MARKET MOVES (Week ending February 04, 2018)

Equities
  • Global equity markets fell over the week for the first time in 2018 as rising bond yields on the back of higher inflation and interest rate expectations led to a sharp sell-off. Globally, economic data held firm whilst earnings reports were mixed. The MSCI World Index fell by 3.4% over the week, outperforming the S&P 500 Index, which fell by 3.8% over the same period. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (3.4% vs. 3.3%).
  • US Small Cap stocks returned in line with Large Cap stocks as the Russell 2000 Index fell 3.8%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (3.4% vs. 0.8%). Growth stocks outperformed Value stocks over the week (-3.6% vs. -4.0%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (5.2% vs. 1.7%).
Bonds
  • The 10 year US Treasury yield and the 30 year US Treasury yield both rose by 18bps each to 2.84% and 3.09% respectively on the back of a stronger than expected employment report in which wages grew at the fastest pace since 2009.
  • The 20 year TIPS yield rose by 13bps to 0.79% while the 20 year breakeven inflation rate rose by 6bps to 2.07%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields fell by 3bps to 126bps and the Bank of America Merrill Lynch US Corporate Index credit spread fell by 2bps to 90bps. The US high yield bond spread over US treasury yields rose by 13bps to 336bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 262bps.
Commodities       
  • The S&P GSCI fell by 1.5% in USD terms over the week. The energy sector fell by 2.3% as the price of WTI crude oil fell by 1.2% to US$66/BBL. Industrial metals decreased by 0.7% as copper prices fell by 0.6% to US$7,004/MT. Agricultural prices rose by 0.5% whilst gold prices fell by 1.6% to US$1,331/ounce.
 Currencies
  • With the exception of the euro, the US dollar appreciated against major currencies over the week. The US dollar was unchanged against the euro at $1.24/€. The US dollar appreciated by 0.4% against sterling, ending the week at $1.41/£.The Japanese yen weakened by 1.6% against the US dollar, ending the week at ¥110.39/$.
Economic Release
  • Although the US Federal Reserve decided to leave the federal funds rate unchanged at 1.25%-1.50%, the latest labour market data pointed toward future rate hikes. Nonfarm payrolls exceeded expectations as a further 200k jobs were added to the US economy; ahead of a forecast of 180k. Moreover, the previous release was upwardly revised from 148k to 160k. The positive jobs report was accompanied by the quickest wage growth since mid-2009. Average hourly earnings were up 2.9% in the year to January, above the consensus estimate of 2.6% growth and up from December's revised reading of 2.7%. Despite the impressive job growth, the unemployment rate met expectations and was unchanged at 4.1%. Elsewhere, the latest reading of the Institute of Supply Management's manufacturing index showed a slight dip from a revised 59.3 to 59.1.
  • In the Eurozone, economic growth remained robust over the last quarter of 2017, as the region's Gross Domestic Product (GDP) rose as expected by 2.7% in the year. The reading for the previous quarter was revised up to 2.8%. Flash inflation data for January also met expectations, as Eurozone consumer price inflation ticked lower to 1.3%, the lowest rate since July 2017. In Germany, headline inflation unexpectedly slowed for a second straight month, led by the sharp easing in energy prices. January's preliminary reading showed inflation declining to 1.6% year-on-year. The flash Eurozone manufacturing Purchasing Manager Index reading for January came in as expected at 59.6. The manufacturing PMI for Germany was marginally below forecasts at 61.1. Meanwhile, European Commission data showed economic sentiment in the euro bloc easing slightly in January from a 17-year high of 115.1 to 114.7, as a result of a slight decline in sentiment in the retail trade sector.
  • Japanese data was largely positive over the week. The provisional reading of industrial production showed an increase of 2.7% in December, up from the 0.5% increase seen in November. The jobless rate unexpectedly rose to 2.8% in December against the expectation of staying unchanged at 2.7%. However, the job-to-application ratio reached its highest level in 44 years, rising to 1.59 in December from 1.56. The final reading for the Nikkei manufacturing Purchasing Manager Index was revised upwards by 0.4 points to 54.8 in January. Retail sales rose by 3.6% over the year to December, above the forecast of 2.2%.
  • The official Chinese manufacturing Purchasing Manager Index for January came in slightly lower at 51.3, below the forecasted reading of 51.6 as output and new orders dipped. However, the non-manufacturing PMI beat forecasts of 54.9 with the index rising to 55.3.
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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