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Aon Retirement and Investment Blog

Weekly Update - 21 January 2019

MARKET MOVES (Week ending January 20, 2019)

Equities 
  • Global equity markets rose over the week. The partial Federal Government Shutdown in the US entered the fifth week, marking the longest government shutdown in the country’s history. The Chinese economy expanded by 6.6% over 2018, the slowest annual rate since 1990.
  • The S&P 500 index rose by 2.9%, outperforming the MSCI World index which rose by 2.3%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (6.6% vs. 6.3%).
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 2.9% and the Russell 2000 index rose by 2.4%. However, on a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (6.6% vs. 10.0%). Growth stocks rose by 3.1% and Value stocks rose by 2.7% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.2% vs 6.4%).
Bonds 
  • The 10-year US treasury yield rose by 8bps to 2.78% whilst the 30-year US treasury yields rose by 6bps to 3.09%. The 20-year TIPS yield rose by 5bps to 1.10% and the 20-year breakeven remained unchanged at 1.85%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 6bps to 185bps and the Bank of America Merrill Lynch US Corporate Index fell by 8bps to 146bps. The US high yield bond spread over US treasury yields fell by 28bps to 427bps. The spread of USD denominated EM debt over US treasury yields fell by 20bps to 372bps over the week.
 Commodities   
  • The S&P GSCI rose by 2.6% in USD terms over the week. The energy sector rose by 3.8% as the price of WTI Crude oil rose by 4.3% to US$54/BBL. Industrial metals rose by 2.2% as copper prices rose by 1.6% to US$6,022/MT. Agricultural prices rose by 0.8% and gold prices fell by 0.4% to US$1,284/Oz.   
Currencies 
  • The US dollar's performance against major currencies over the week was mixed. The US dollar depreciated by 0.7% against sterling, ending the week at $1.29/£. The US dollar appreciated by 1.0% against the euro, finishing the week at $1.14/€. The US dollar appreciated by 1.1% against the Japanese yen, ending the week at ¥109.67/$. The US dollar remained broadly unchanged against the Canadian dollar, ending the week at C$1.32/$.   
Economic Releases
  • The US Federal government shutdown continues to rumble on with a number of economic releases delayed. Consumer confidence, which has been fairly resilient over the past several months, weakened in January as the University of Michigan's Consumer Sentiment index declined by 7.6 points to 90.7 and below expectations of a milder dip to 96.8. Although industrial production figures for December did marginally outperform forecasts it did slow from the previous month's downwardly revised 0.4% increase. Initial jobless claims continue to be at very low levels – only 213k claimed unemployment benefits, down from the previous reading of 216k and below consensus estimates of 220k. The Philadelphia Federal Reserve Manufacturing survey for January surpassed expectations and rebounded strongly to 17.0 from a downwardly revised 9.1. Analysts had anticipated a slight dip to 9.0 in January. 
  • In the Euro Area, industrial production fell by 1.7% in the month of November, underperforming consensus forecasts of a 1.5% decline. This was the largest monthly fall in over two years. German economic growth slowed in 2018, recording the slowest pace of expansion in 5 years. The German economy grew by 1.5% in 2018, slowing from the 2.2% growth recorded in 2017. Meanwhile, Consumer Price Inflation in the year to December was confirmed at 1.7%, in line with the preliminary reading.
  • In Japan, core machine orders were flat in November, well below the 7.6% growth recorded in the previous month and below analyst forecasts of 3.0% growth. Headline consumer price inflation met consensus estimates and slowed to 0.3% from 0.8% for the year to December while core consumer price inflation, which excludes more volatile food but not energy prices, slowed to 0.7% from 0.9%, marginally below expectations of 0.8%. In addition, the Tertiary Industry index fell 0.3% in November against a forecasted decrease of 0.6% but well below the previous month’s revised 2.2% increase. The year-on-year increase in industrial production was revised higher to 1.5% from 1.4% for November. 
  • Despite a series of expansionary policies implemented in recent months, the Chinese economy further decelerated to 6.4% from an annualised 6.5% over the fourth quarter of 2018. It recorded an economic growth of 6.6% in 2018 – the slowest annual rate since 1990. Industrial production grew by 5.7% for the year to December, against analyst expectations of production slowing to 5.3%. Fixed asset investment grew by 5.9% (year-to-date) from a year earlier, marginally below forecasts of 6.0% growth. Retail sales growth unexpectedly picked up in December as sales grew by 8.2% over the period, up from the 8.1% increase seen in the previous month.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.
 
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