Set Regional Preference
Required Field*
Set geographic preferences to highlight topics of greatest interest of you, written in your base currency.
 




 
 










Aon Hewitt Retirement and Investment Blog

Weekly Update - 22 January 2018 (UK/Europe)

NEW INTELLECTUAL CAPITAL
  • 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
  • Global equity markets rose over the week supported by strong economic data. All the regions, except the UK and Developed Pacific ex Japan, generated positive returns in local currency terms. The MSCI AC World Index rose 0.8% in local currency terms whilst it remained flat in sterling terms due to broad sterling strength. Emerging market equities were the best performing market both in local currency (1.8%) and sterling terms (0.9%) supported by solid Chinese economic growth data. The UK was the worst performing market both in local currency and sterling terms, returning -0.6%, as sterling strength hit blue chip stocks with overseas revenues, dragging down returns.
  • UK gilt yields were largely unchanged across all maturities over the week. The 10 year UK gilt yield was unchanged at 1.38% whilst the 20 year UK gilt yield fell by 1bp to 1.83%. The 10 year US treasury yield rose by 9bps to 2.64% as uncertainty over the US government shutdown loomed. European government bond yields fell across the region as investors waited for further guidance in the next week’s European Central Bank meeting. German bund yields fell by 3bps to 0.50% and French government bond yields fell by 2bps to 0.72%.
  • The UK 20 year real yield fell 1bp to -1.65% whilst the Over 5 year real yield rose by 2bps to -1.59%. 20 year breakeven inflation rose by 1bp to 3.41%.
  • Credit spreads fell over the week. 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 sterling non-gilt spread over government yields (based on the Merrill Lynch index) fell by 2bps to 96bps.
  • 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 Brent crude oil fell by 1.0% to US$69/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.
  • Sterling strengthened against major currencies over the week. The US dollar depreciated by 1.1% against sterling, ending the week at $1.38/£. The euro weakened by 0.5% against sterling, finishing the week at €1.13/£. The Japanese yen appreciated by 0.6% against the US dollar, ending the week at ¥110.64/$.
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 the UK, the Consumer Price Index (CPI) rose by 3.0% over the year to December, down marginally from 3.1% in November. Core inflation, which excludes energy, food, alcohol and tobacco, slowed to 2.5% on an annual basis in December from 2.7% in November. Retail sales data for December disappointed, with sales excluding auto and fuel decreasing by 1.6% month-on-month, below analyst forecasts of a 1.0% decrease and down from the previous month’s 1.1% increase. On an annual basis, sales ex auto and fuel grew by 1.3%, undershooting expectations of a 2.6% rise as higher inflation put a squeeze on consumer spending. House prices data was encouraging as the Royal Institute of Chartered Surveyors (RICS) reported that its monthly house price index rose to +8 in December from zero in November, which was its lowest reading since March 2013. Rightmove reported 0.7% growth in house prices over January, rebounding from December’s revised 2.3% decline.
  • 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.
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.


Share:Add to Twitter Add to Facebook Add to LinkedIn   Print