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Aon Retirement and Investment Blog

Weekly Update - 11 February 2019

MARKET MOVES (Week ending February 10, 2019)

  • Global equity markets fell over the week as the potential prospect of another US Government shutdown and escalating trade concerns weighs on investor sentiments. Next week, the US Department of Commerce is expected to deliver a report on the national security implications of US auto imports. This could have a significant impact on the US-European Union (EU) trade relationship, as US could potentially impose auto tariffs on EU imports on national security grounds.  
  • The S&P 500 index rose by 0.1%, outperforming the MSCI World index which fell by 0.4%. On a year-to-date basis, the S&P 500 index outperformed the MSCI World index (8.2% vs 7.4%). 
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 0.1% and the Russell 2000 index rose by 0.3%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (8.2% vs. 11.8%). Growth stocks rose by 0.6% and Value stocks fell by 0.3% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (9.8% vs 7.2%). 
  • Both the 10-year and the 30-year US treasury yield fell by 5bps each to 2.63% and 2.98% respectively. The 20-year TIPS yield fell by 1bp to 0.97% and the 20-year breakeven fell by 5bps to 1.85%.    
  • The spreads on the Bloomberg Barclays Capital Long Credit Index remained flat at 176bps and the Bank of America Merrill Lynch US Corporate Index fell by 2bps to 134bps. The US high yield bond spread over US treasury yields went up by 3bps to 432bps. The spread of USD denominated EM debt over US treasury yields went up by 9bps to 362bps over the week.
  • The S&P GSCI fell by 1.6% in USD terms over the week. The energy sector fell by 2.4% as the price of WTI Crude oil fell by 4.6% to US$53/BBL. Industrial metals fell by 0.1% despite copper prices rising by 1.8% to US$6,207/MT. Agricultural prices fell by 0.9% and gold prices fell by 0.3% to US$1,315/Oz.    
  • The US dollar appreciated against major currencies. The US dollar appreciated by 1.1% against sterling, ending the week at $1.29/£. The US dollar appreciated by 1.2% against the euro, finishing the week at $1.13/€. The US dollar appreciated by 0.3% against the Japanese yen, ending the week at ¥109.73/$. The US dollar appreciated by 1.3% against the Canadian dollar, ending the week at C$1.33/$.    
Economic Releases
  • US weekly jobless claims fell from an eighteen-month high of 253k to 234k, but nonetheless overshot analysts' forecasts of 221k. The Institute of Supply Management's (ISM) Non-Manufacturing index, a measure of activity in the services sector, fell by 1.3 points to 56.7 in January, missing consensus estimates of 57.1. Factory orders in November declined by 0.6% after a 2.1% decrease in October as demand for machinery and electrical equipment fell sharply over the month. After widening for five straight months, the US trade deficit unexpectedly narrowed in November to $49.3bn from an upwardly revised $55.7bn in October, as imports fell relative to exports. 
  • In the Eurozone, the services and composite PMI readings for January both ticked higher, to 51.2 and 51.0, respectively. Retail sales contracted by 1.6% in December following November's upwardly revised 0.8% increase, taking year-on-year growth to 0.8%, down from the revised 1.8% growth in November. In Germany, industrial production fell by 0.4% in December, following on from a revised fall of 1.3% in November; markets had expected a 0.8% increase. Factory orders also came in well below expectations, falling by 1.6% in December, down from a revised decrease of 0.2% in November. The German trade surplus fell sharply from €20.4bn to €13.9bn, the lowest trade surplus since January 2016, as exports declined sharply.
  •  Despite a survey data scandal that resulted in an underestimation of wages in Japan, labour cash earnings continued to be encouraging with year-on-year growth ticking higher to 1.8% in December. This was slightly up from the downwardly revised 1.7% growth recorded in the previous month and above analyst forecasts of 1.7%. Once adjusted for inflation, real wages rose by 1.4% in the year to December, up from the downwardly revised 0.8% growth recorded in the previous month but lower than consensus estimates of a 1.7% increase. The current account surplus narrowed from ¥757.2bn to ¥452.8bn in December and fell short of forecasts of a ¥469.3bn surplus. Elsewhere, the Nikkei Services PMI accelerated to 51.6 in January from 51.0 whilst the overall composite PMI slowed to 50.9 from 52.0 over the same period. 
  • There were no economic releases in China, as markets close for the week due to the Lunar New Year holidays.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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