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Aon Retirement and Investment Blog

Weekly Update - 07 January 2019

MARKET MOVES (Week ending January 6, 2019)


  • Global equity markets rose over the week. US and China witnessed lower manufacturing growth, which could indicate a possible future economic slowdown. Apple Inc. downgraded their earnings guidance citing Chinese economic slowdown, aggravating market concerns about the health of the Chinese economy. 
  • Elsewhere, the US Federal Reserve (Fed) chairman Jerome Powell mentioned that the Fed would be patient in increasing the rates in future and “wouldn’t hesitate” to change the current balance sheet policy if needed.
  •  The S&P 500 index rose by 1.9% marginally outperforming the MSCI World index which rose by 1.8%. On a year-to-date basis, the S&P 500 Index has marginally underperformed the MSCI World Index (1.0% vs. 1.1%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 1.9% and the Russell 2000 index rose by 3.2%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (1.0% vs. 2.4%). Growth stocks rose by 1.7% and Value stocks rose by 2.2% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have underperformed Value stocks (0.7% vs 1.4%).
  • The 10-year US treasury yield fell by 8bps to 2.66% whilst the 30-year US treasury yields fell by 7bps to 2.97% in a week in which the US posted mixed economic data. The 20-year TIPS yield fell by 6bps to 1.05% and the 20-year breakeven remained unchanged at 1.78%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 2bps to 200bps and the Bank of America Merrill Lynch US Corporate Index rose by 4bps to 162bps. The US high yield bond spread over US treasury yields fell by 25bps to 505bps. The spread of USD denominated EM debt over US treasury yields fell by 4bps to 406bps over a week.
  • The S&P GSCI rose by 3.2% in USD terms over the week. The energy sector rose by 5.3% as the price of WTI Crude oil rose by 5.8% to US$48/BBL. Industrial metals fell by 0.2% as copper prices fell by 3.0% to US$5,840/MT. Agricultural prices rose by 1.2% and gold prices rose by 0.1% to US$1,280/Oz.  
  • The US dollar depreciated against most major currencies (except euro) over the week. The US dollar depreciated by 0.3% against sterling, ending the week at $1.27/£. The US dollar appreciated by 0.2% against the euro, finishing the week at $1.14/€. The US dollar depreciated by 2.1% against the Japanese yen, ending the week at ¥108.13/$. The US dollar depreciated by 1.8% against the Canadian dollar, ending the week at C$1.34/$.  
Economic Releases
  • Economic releases in the US were fairly mixed last week. December's non-farm payroll data recorded an increase of 312k new jobs, significantly exceeding analyst forecasts of a 184k increase. The December jobs gains meant that total US employment rose above 150 million for the first time. However, the unemployment rate ticked up by 0.2% to 3.9% in December, despite consensus estimates of an unchanged reading, as the participation rate increased. Average hourly earnings increased by 3.2% in the year to December, equaling a post-2009 high. However, the Institute of Supply Management's (ISM) manufacturing index, A measure of national factory activity, for December fell by 5.2 points to 54.1, undershooting expectations of a 57.5 reading. 
  • Inflation in the Euro Area continued to slow in December with year-on-year CPI inflation at 1.6% versus 2.0% in November and market expectations of 1.7%. The slowdown was largely driven by a slowdown in the growth of energy, food, alcohol and tobacco prices. Core inflation was unchanged at 1.0%. In Germany, Markit Services PMI was revised down to 51.8 – the weakest expansions since September 2016 – from its initial estimate of 52.5. This was driven by a further fall in new export business. Manufacturing PMI was unchanged at 51.5.
  •  In Japan, the final reading of the Nikkei manufacturing PMI ticked higher to 52.6 in December, up from a preliminary reading of 52.4 and a 15-month low of 52.2 recorded in the previous month. However, the Nikkei Services PMI and the overall composite PMI slowed to 52.0 and 51.0 respectively over the same period. 
  • The People’s Bank of China cut its reserve requirement ratio by a further 100bps to inject more liquidity into the economy. The Caixin manufacturing PMI, which focuses more on small and mid-sized Chinese businesses, fell into contractionary territory for the first time since May 2017 amidst a slowdown in new domestic and export orders. It fell to 49.7 in December, against expectations of it remaining at 50.2. The Caixin services PMI edged up to 53.9 over the same month against expectations of it slowing down to 53.0. Overall, the Caixin composite PMI rose to 52.2 in December, up from 51.9 in November.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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