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Aon Retirement and Investment Blog

Weekly Update - 04 February 2019

NEW INTELLECTUAL CAPITAL

  • Hedge Fund Quarterly UpdateThe Hedge Fund Research Team is pleased to present its semi-annual update of recent updates in the hedge fund space.
MARKET MOVES (Week ending February 3, 2019)
 
Equities 
  • There was little progress in the U.S.-China trade talks last week despite a meeting between US and Chinese representatives. However, U.S. President Donald Trump announced that Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will be sent to China for the next round of talks in mid-February. U.S. Federal Reserve policy makers left interest rates unchanged, as was widely expected, but pledged to take a patient approach towards further interest rate rises and indicated greater flexibility on reducing the size of the Fed's balance sheet.
  • The S&P 500 index rose by 1.6%, outperforming the MSCI World index which rose by 1.4%. On a year-to-date basis, the S&P 500 index outperformed the MSCI World index (8.1% vs 7.9%). 
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 1.6% and the Russell 2000 index rose by 1.3%. However, on a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (8.1% vs. 11.4%). Growth stocks rose by 1.8% and Value stocks rose by 1.6% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (9.2% vs 7.6%).
Bonds  
  • The 10-year US treasury yield fell by 6bps to 2.69% whilst the 30-year treasury yield fell by 3bps to 3.03% in a week in which U.S. Federal Reserve policy makers left interest rates unchanged. The 20-year TIPS yield fell by 13bps to 0.98% and the 20-year breakeven rose by 9bps to 1.90%.   
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 5bps to 176bps and the Bank of America Merrill Lynch US Corporate Index fell by 4bps to 136bps. The US high yield bond spread over US treasury yields fell by 5bps to 429bps. The spread of USD denominated EM debt over US treasury yields fell by 7bps to 354bps over the week.
Commodities    
  • The S&P GSCI rose by 0.9% in USD terms over the week. The energy sector rose by 1.5% as the price of WTI Crude oil rose by 2.9% to US$55/BBL. Industrial metals rose by 0.7%, as copper prices rose by 3.3% to US$6,098/MT. Agricultural prices fell by 0.2% and gold prices rose by 1.9% to US$1,319/Oz.    
Currencies  
  • The US dollar depreciated against most major currencies, with the except of sterling. The US dollar appreciated by 0.6% against sterling, ending the week at $1.31/£. The US dollar depreciated by 0.6% against the euro, finishing the week at $1.15/€. The US dollar depreciated by 0.3% against the Japanese yen, ending the week at ¥109.38/$. The US dollar depreciated by 1.2% against the Canadian dollar, ending the week at C$1.31/$.    
Economic Releases
  • Economic releases in the US were encouraging. A measure of national factory activity, the Institute of Supply Management's (ISM) manufacturing index for January, bucked expectations of a 0.3-point decline and climbed to 56.6, recording the 28th straight month of expansion. The sub-index measuring New Orders rose to 58.2 from 51.3 whilst Employment sub index slipped to 55.5 from 56. The ISM Prices Paid sub-index dropped to 49.6 from 54.9 but this was largely driven by lower raw material prices. January's non-farm payroll release surpassed analyst forecasts of 165k with 304k new jobs being added over the month; well ahead of the downwardly revised 222k reading in December. The unemployment ticked up to 4.0% from 3.9%, but it can be partially attributed to the temporary effect of the federal government shutdown and an increasing labour force participation.
  • Euro Area GDP expanded by just 0.2% in Q4 2018, as the Italian economy fell into a technical recession in the second half of 2018. This took year-on-year GDP growth to 1.2% from 1.6% seen in the previous quarter, the weakest since 2013. Inflation slowed with headline consumer price inflation decelerating by 0.2% to 1.4% in the year to January, but the decline was in line with consensus estimates. However, core inflation increased by 0.1% to 1.1%. The German inflation rate held steady with the EU-harmonized Consumer Price Index increasing by 1.7% year-on-year in January. Elsewhere, German retail sales fell by 2.1% in the year to December 2018, defying expectation of it increasing by 1.5%.
  • In Japan, the final reading of the Nikkei manufacturing PMI ticked higher to 50.3 in January, up from a preliminary reading of 50.0. Based on preliminary data, Japanese industrial production contracted by 0.1% in December; slower than an expected 0.5% fall and significantly less than November’s 1.0% decrease. Retail sales rebounded by 0.9% in December from the previous month's 1.1% decline recorded in November due to increased consumer spending. Japan’s labour market strengthened as the jobless rate for December inched slightly lower to 2.4% (lowest rate in 26 years), against forecasts of it remaining at 2.5%. However, the job-to-applicant ratio remained unchanged at 1.63.
  • In China, the manufacturing sector contracted for the second consecutive month. The official Chinese manufacturing PMI for January inched higher to 49.5 from 49.4. Meanwhile, the official non-manufacturing index rose to 54.7 from 53.8 over the month. The Caixin manufacturing PMI, which focuses more on small and mid-sized Chinese businesses, further contracted to 48.3 in January, lower than consensus estimates of it slowing down to 49.6. The Caixin services PMI edged lower to 53.6 over the same month against expectations of it slowing down to 53.4. Overall, the Caixin composite PMI fell to 50.9 in January, down from 52.2 in December.
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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