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Aon Retirement and Investment Blog

Weekly Update - 15 January 2018

MARKET MOVES -  Week Ending January 14, 2018

  • Global equity markets continued to rise, supported by strong economic data and a continued rise in crude oil prices. In Europe, political uncertainty took a backseat after Angela Merkel’s Christian Democratic Union (CDU) party and the Social Democratic Party (SDP) made headway on a coalition agreement. The MSCI World Index rose by 1.4% over the week, marginally underperforming S&P 500 Index, which rose by 1.6% over the same period. On a year-to-date basis, S&P 500 Index has outperformed MSCI World Index (4.3% vs. 3.9%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 Index rose 2.1% whilst S&P 500 Index returned 1.6% over the week. On a year-to-date basis, S&P 500 Index has outperformed Russell 2000 Index (4.3% vs. 3.7%). Growth stocks outperformed Value stocks over the week (1.8% vs. 1.4%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (5.3% vs. 3.2%).
  • The 10 year US Treasury yield rose by 7bps to 2.55% and the 30 year US Treasury yield rose by 4bps to 2.85%.
  • The 20 year TIPS yield rose by 7bps to 0.64% whilst the 20 year Breakeven inflation rate remained flat at 1.92%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields fell by 5bps to 133bps whilst the Merrill Lynch US Corporate Index credit spread fell by 3bps to 95bps. The US high yield bond spread over US treasury yields rose 1bp to 337bps. The spread of USD denominated EM debt over US treasury yields also finished the week 1bp higher at 272bps.
  • The S&P GSCI rose by 2.3% in USD terms over the week. The Energy Sector rose by 4.0% as the price of WTI crude oil rose by 4.4% to US$64/BBL. The Industrial Metals Sector rose by 0.3% despite copper prices declining by 0.1% to US$7,074/MT. The Agricultural Sector fell by 1.6% whilst gold prices rose by 0.9% to US$1,331/ounce.
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 0.9% against sterling, ending the week at $1.37/£. US dollar weakened by 0.9% against the euro, finishing the week at $1.21/€. The Japanese yen strengthened by 1.7% against the US dollar, ending the week at ¥111.32/$.
Economic Releases
  • In the US, consumer price inflation met expectations and slowed down to 2.1% for the year to December from 2.2%. Core inflation, which excludes food and energy, outpaced consensus estimates and rose to 1.8%. Analysts had expected core inflation to be unchanged at 1.7%. Meanwhile, the Labor Department’s producer prices index (Producer Prices Index) fell in December for the first time in nearly a year and a half. The PPI slipped by 0.1%, while a 0.2% increase was forecasted following two consecutive months of 0.4% growth. Apart from inflation releases, US retail sales slightly underperformed expectations of 0.5% growth, rising by just 0.4% in December. At the same time, November’s provisional reading of 0.8% growth was revised higher to 0.9%.
  • In Europe, industrial production data for Germany exceeded consensus expectations as production rose by 3.4% over November, on a seasonally adjusted basis. This represented a rebound from the previous month’s 1.2% decline and forecasts of 1.8% growth. Industrial production data for the Eurozone as a whole was slightly ahead of expectations, increasing 1.0% over the month, up from 0.4% previously. Factory orders in Germany unexpectedly declined by 0.8% over November, after three successive months of gains. This dip was largely attributed to fluctuations in bulk orders; the overall trend, however, remains positive. Meanwhile, the European Commissions’ economic sentiment indicator for December jumped to its highest level since 2000. The indicator moved from its previous reading of 114.6 to 116, beating forecasts of 114.8.
  • The Japanese current account surplus narrowed to ¥1347.3bn in the year to November, marking the first decline since June. Japan has recorded a trade surplus for 41 consecutive months, but it has started to shrink in recent months partly due to high crude oil prices. Wage growth data was encouraging as labour cash earnings grew by 0.9% for the year to November against a forecasted increase of 0.6%. Real wages (which takes inflation into consideration) unexpectedly rose by 0.1%; going against analyst forecasts of a 0.1% decline.
  • In China, the Consumer Price Index (CPI) rose by 1.8% over the year to December, slightly up from 1.7% in November. The increase in prices was predominantly due to an increase in non-food prices such as medical products and housing. Export growth slowed down in December with exports growing by 10.9% over the twelve month period, down from the revised 11.5% increase up to November. There was also a slowdown in import growth, as imports rose by only 4.5% in dollar terms, against expectations of a 15.1% increase. 
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