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Aon Retirement and Investment Blog

Weekly Update - 22 January 2018

  • Webinar on Aon’s 2018 Investment Outlook: We will be discussing the market environment and outlook, regulatory changes and their potential impacts on retirement and investment programs, and investment strategies that we believe are primed to perform well. 
MARKET MOVES -  Week Ending January 21, 2018
  • Global equity markets rose over the week supported by strong economic data. The MSCI World Index rose by 1.0% over the week, marginally outperforming S&P 500 Index, which rose by 0.9% over the same period. On a year-to-date basis, S&P 500 Index has outperformed MSCI World Index (5.2% vs. 5.0%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 Index rose 0.4% whilst S&P 500 Index returned 0.9% over the week. On a year-to-date basis, S&P 500 Index has outperformed Russell 2000 Index (5.2% vs. 4.1%). Growth stocks outperformed Value stocks over the week (1.2% vs. 0.6%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (6.6% vs. 3.8%).
  • The 10 year US Treasury yield rose by 11bps to 2.66% and the 30 year US Treasury yield rose by 8bps to 2.93% as uncertainty over the US government shutdown loomed.
  • The 20 year TIPS yield rose by 3bps to 0.67% and the 20 year Breakeven inflation rate rose by 7bps to 1.99%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields and the Bank of America Merrill Lynch US Corporate Index credit spread remained unchanged at 133bps and 95bps respectively. The US high yield bond spread over US treasury yields fell by 2bps to 335bps. The spread of USD denominated EM debt over US treasury yields finished the week 4bps lower at 268bps.
  • The S&P GSCI fell by 0.6% in USD terms over the week. The energy sector fell by 1.3% as the price of WTI crude oil fell by 1.3% to US$63/BBL. Industrial metals were unchanged despite copper prices declining by 1.1% to US$6,999/MT. Agricultural prices rose by 0.4% and gold prices rose by 0.2% to US$1,333/ounce.  
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 1.2% against sterling, ending the week at $1.38/£. US dollar weakened by 0.6% against the euro, finishing the week at $1.22/€. The Japanese yen strengthened by 0.6% against the US dollar, ending the week at ¥110.64/$.
Economic Releases
  • Unseasonably cold weather in December affected activity in both the industrial and housing sectors. Demand for heating in the US supported a 5.6% increase in utilities production, helping industrial production rebound from November’s 0.1% decline. Production in the industrial sector rose by 0.9%, above forecasts of 0.5% growth. The cold weather was also a likely factor in the sharp downturn in US home-building. Housing starts fell by more than anticipated with an 8.2% drop recorded over December against expectations of a 1.7% fall. This disappointing release follows November’s downwardly revised figure of 3.0% growth. The provisional reading of the University of Michigan’s Consumer Sentiment index showed a fall in consumer confidence. The index unexpectedly slipped from 95.9 in December to 94.4, while analysts had expected a 1.1 point increase to 97.0.
  • In Europe, final inflation data was confirmed at 1.4% over the year to December, slowing from 1.5% in the previous month. Core inflation for the Eurozone was as with consensus at 0.9% over the year. In Germany, final inflation figures for December were also left unchanged from the flash readings, increasing 1.7% annually and 0.6% month-on-month. Trade balance data for the Eurozone showed a widening of the surplus in November on a seasonally adjusted basis, reaching €22.5bn, from €19.0bn in the previous month and slightly ahead of expectations of €22.3bn. The Eurozone current account surplus measured €32.5bn in November, growing from the prior month’s downwardly revised level of €30.3bn.
  • The final reading for November's industrial production in Japan showed a downward revision to 0.5% from 0.6%. Core machine orders were expected to fall by 1.4% after October's strong reading of 5.0% growth. However, the number of orders accelerated in November, rising by a further 5.7% over the month. This reading points to a strengthening in capital investment spending in the Japanese economy. Producer price inflation slipped to 3.1% from a revised 3.6%, below expectations of 3.2%.
  • In China, the economy expanded at 6.8% (year-on-year) in the final quarter of 2017, above the expectation of 6.7% growth as the country delivered faster annual growth for the first time in seven years. Much of the growth was predominantly due to the growth of exports, as the global economic recovery drove demand for Chinese goods. Industrial production over the year to December rose by 6.2%, similarly outpacing forecasts (6.1%). However, there was a slowdown in retail sales. Analysts had expected retail sales growth to be maintained at 10.2%, but it slowed to 9.4% in the year to December. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.
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