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Aon Retirement and Investment Blog

Weekly Update - 29 January 2018

MARKET MOVES (Week ending January 28, 2018)

  • Global equity markets rose over the week in which the International Monetary Fund (IMF) upgraded its global economic growth forecasts and the World Economic Forum at Davos took centre stage. The European Central Bank and the Bank of Japan both voted to keep their monetary policy unchanged. The MSCI World Index rose by 1.9% over the week, underperforming S&P 500 Index, which rose by 2.2% over the same period. On a year-to-date basis, S&P 500 Index has outperformed MSCI World Index (7.5% vs. 7.0%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 Index rose 0.7% whilst S&P 500 Index returned 2.2% over the week. On a year-to-date basis, S&P 500 Index has outperformed Russell 2000 Index (7.5% vs. 4.8%). Growth stocks outperformed Value stocks over the week (2.4% vs. 2.1%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (9.1% vs. 6.0%).
  • The 10 year US Treasury yield remained unchanged at 2.66% whilst the 30 year US Treasury yield fell by 2bps to 2.91%.
  • The 20 year TIPS yield fell by 2bps to 0.66% while the 20 year breakeven inflation rate rose by 2bps to 2.01%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields fell by 4bps to 129bps and the Bank of America Merrill Lynch US Corporate Index credit spread fell by 3bps to 92bps. The US high yield bond spread over US treasury yields fell by 12bps to 323bps. The spread of USD denominated EM debt over US treasury yields finished the week 4bps lower at 264bps.
  • The S&P GSCI rose by 2.9% in USD terms over the week. The energy sector rose by 3.9% as the price of WTI crude oil rose by 4.6% to US$66/BBL. Industrial metals increased by 1.5% as copper prices rose 0.6% to US$7,043/MT. Agricultural prices rose by 1.4%, whilst gold prices also increased by 1.4% to reach US$1,353/ounce, sustaining the uptrend since mid-December.
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 2.4% against sterling, ending the week at $1.42/£. US dollar weakened by 1.7% against the euro, finishing the week at $1.24/€. The Japanese yen strengthened by 1.9% against the US dollar, ending the week at ¥108.59/$.
Economic Release
  • US data releases were mixed over the week. The US economy expanded at an annualized rate of 2.6% over the fourth quarter, down from 3.2% previously and missing expectations of 3.0% growth. Despite this, underlying measures of the economy remain robust: personal consumption just exceeded forecasts with an annual increase of 3.8% (up from 2.2%) which is the strongest pace in over three years. This buoyancy led to a marked increase in imports which grew at their fastest rate in over seven years. The manufacturing Purchasing Managers' Index (PMI) unexpectedly rose 0.4 points higher to 55.5; analysts had forecasted a reading of 55.0. Meanwhile, the US Federal Reserve's preferred measure of inflation, the core Personal Consumption Expenditure (PCE) price index, rose at its fastest pace in more than a year; 1.9% for the year to December.
  • In the Eurozone, preliminary PMI readings for January were strong. The composite reading showed a 0.5 point increase to 58.6, beating market expectations of 57.9. Whilst the Eurozone’s manufacturing PMI undershot expectations and declined to 59.6 from 60.6 previously, the reading remains at a very high level in historical terms. German PMI numbers also held firm, with the manufacturing PMI reading 61.2, albeit declining from December’s reading of 63.3 and behind the forecasted level of 63.0. The headline IFO business climate reading for Germany unexpectedly improved in January to reach 117.6 from 117.2 last month. Meanwhile, ZEW economic sentiment indicators for Germany were strong. The ZEW expectations survey rose to 20.4 versus 17.7 forecasted and 17.4 previously.
  • In Japan, headline annual consumer price inflation came in at 1.0% in December, marginally below consensus estimates of 1.1%. Core consumer price inflation also picked up to 0.9% over the same period. Japan’s trade balance posted a surplus of ¥359.0bn in December, up from a revised surplus of ¥112.2bn in the previous month. However, this figure was less than the ¥535.0bn estimate as imports rose by more than expected, up 14.9% over the year to December (against forecasts of 12.4%). Meanwhile, export growth missed analyst forecasts, rising by only 9.3% over the same period. The preliminary reading of the Nikkei manufacturing PMI indicated a pick-up in growth with the index rising from 54.0 to 54.4 in January.
  • In China, industrial profits rose by 21.0% in 2017, twice the pace of 2016 and also the fastest growth since 2011, to reach 7.5 trillion yuan.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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