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Aon Retirement and Investment Blog

Weekly Update - 2 January 2018

MARKET MOVES - Two weeks ending December 31, 2017

  • Global equities rose marginally Dec 18-29th, 2017 which saw the US Senate pass Trump’s tax reform bill. The MSCI World Index rose by 0.9% over the fortnight, outperforming S&P 500 which delivered flat returns over the same period.  In the year 2017, MSCI World outperformed S&P 500 (23.1% vs. 21.8%).
  • US Large Cap stocks underperformed Small Cap stocks as the S&P 500 was flat whilst Russell 2000 rose by 0.4% over the fortnight. In the year 2017, S&P 500 has outperformed Russell 2000 (21.8% vs. 14.6%). Growth stocks underperformed Value stocks over the fortnight (-0.2% vs. 0.2%) as measured by MSCI  USA Growth and Value Indices. Over the last year, Growth stocks have outperformed Value stocks (28.7% vs. 15.4%).
  • Both The 10 year US Treasury yield and the 30 year US Treasury yield rose by 5bps each to 2.41% and 2.74% respectively.
  • The 20 year TIPS yield fell by 3bps to 0.56% whilst the 20 year Breakeven rose by 7bps to 1.86%.
  • The Bloomberg  Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index spread fell by 2bps each to 139bps and 98bps respectively.
  • The US high yield bond spread over US treasury yields fell by 6bps to 358bps. The spread of USD denominated EM debt over US treasury yields finished the week 3bps lower at 285bps.
  • The S&P GSCI rose by 5.5% in USD terms. The energy sector rose by 6.7% as the price of WTI crude oil increased by 5.5% to US$60/BBL. Industrial metals rose by 6.3% as copper prices increased by 5.1% to US$7,207/MT. Agricultural prices rose by 2.3% and the gold price rose by 3.9% to US$1,303/ounce. 
  • The US dollar depreciated against major currencies (except for the yen) over the period. The US dollar depreciated by 1.6% against sterling, ending the week at $1.35/£. US dollar weakened by 2.1% against the euro, finishing the week at $1.20/€. The Japanese yen was unchanged against the US dollar, ending the week at ¥112.65/$.
Economic Releases
  • In the last two weeks of 2017, the final reading of US Q3 GDP growth was revised marginally down to 3.2% from 3.3%. Nonetheless, the US economy still grew at the fastest pace in more than two years. Despite rebounding from a 0.4% decline in October, the provisional 1.3% increase in orders for US capital goods in November fell short of expectations of a 2.0% gain The Conference Board’s consumer confidence index fell from a seventeen-year high of 128.6. The index dropped to 122.1, below forecasts of 128.0, due to a perceived worsening in expectations in the business climate. Finally, the US Federal Reserve’s preferred measure of inflation, the core Personal Consumption Expenditures (PCE) price index, met expectations and rose to 1.5% from 1.4%.
  • In Europe, data releases were mixed over the period. Germany’s IFO Business Climate reading edged down unexpectedly to 117.2, from 117.6 in November. The dip in this widely-followed indicator reflects less optimistic business expectations compared with the previous month yet remains favorable. However, consumer confidence data for the Eurozone was encouraging, with the European Commission’s measure exceeding estimates. The indicator rose from 0 to 0.5 in December; the highest reading since January 2001. Meanwhile, German inflation data surprised on the upside. The December flash reading reflected a 1.6% year-on-year price increase, versus 1.4% expected.
  • In Japan, headline annual consumer price inflation came in at 0.6% in November, marginally beating consensus estimates of 0.5%. Core consumer price inflation also picked up to 0.3% over the same period. The tight labor market persists in Japan with the jobless rate falling to 2.7% in November from 2.8%. Meanwhile, the job-to-applicant rose to 1.56 over the same period. Retail sales outperformed expectations of 1.0% growth and rose by 2.2% over the year to November. Japan’s trade balance posted a surplus of ¥113.4bn in November against a forecasted deficit of ¥40.0bn.
  • Industrial profits in China grew at their slowest pace in seven months, at 14.9%, in the year to November; down from the previous month’s reading of 25.1%. Factors that have supported industrial profitability over the last year, namely strong demand and a pick-up in producer price inflation, weakened in November. The final reading of the current account surplus showed a widening to $40.5bn from $37.1bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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