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Aon Retirement and Investment Blog

Weekly Update - 31 July 2017


MARKET MOVES (Week Ending July 28, 2017)
  • Global equity returns edged higher over the week. Advances in commodity prices failed to push up equity markets significantly due to mixed corporate earnings reports and doubts over the Trump administration’s ability to implement the promised reforms. The MSCI World Index rose by 0.1% over the week, outperforming S&P 500 which was flat over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (13.7% vs. 11.7%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 index remained flat whilst the Russell 2000 index fell by 0.4% over the week. On a year to date basis, the S&P 500 has outperformed the Russell 2000 (11.7% vs. 6.1%). Value stocks outperformed Growth stocks last week (0.3% vs. -0.2%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (17.1% vs. 6.8%).
  • 10 year US Treasury yields rose by 5bps and 30 year US Treasury yields rose by 9bps, ending the week at 2.29% and 2.90% respectively. Yields rose as the US Federal Reserve (Fed) indicated that it expected to begin trimming it’s $4.5 trillion balance sheet ‘relatively soon’ but kept interest rates unchanged.
  • 20 year TIPS yield remained unchanged at 0.64% over the week. 20 year Breakeven rose by 7bps to 1.76%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 1bp to 151bps and Merrill Lynch US Corporate Index fell by 2bps to 108bps over the week. The US high yield bond spread over US treasury yields fell by 5bps to 359bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp lower at 305bps. 
  • The S&P GSCI rose by 4.2% in USD terms over the week. The energy sector rose by 7.6% as the price of WTI crude oil increased by 8.6% to $50/BBL. Oil prices rose after Saudi Arabia pledged to curb its oil exports and Nigeria agreed to cut its crude oil production. Industrial metals rose by 2.8% as copper prices increased by 5.4% to $6,296/MT. Agricultural prices fell by 1.3% whilst gold prices rose by 1.3% to $1,268/ounce.
  •  The US dollar depreciated against all currencies over the week due to low inflation concerns as signaled at the latest US Fed monetary policy meeting. The US dollar depreciated by 1.0% against sterling, ending the week at $1.31/£. US dollar weakened by 0.8% against the euro, finishing the week at $1.17/€. The Japanese yen appreciated by 0.2% against the US dollar, ending the week at ¥110.96/$.
Economic Releases
  • In the US, the pace of economic expansion quickened over Q2 2017 with a 2.6% annualized rate of GDP growth; up from Q1’s 1.2% but narrowly below consensus estimates of 2.7%. This pick-up in growth was also accompanied by the first increase in the manufacturing Purchasing Managers' Index (PMI) since the index reached 55.1 in January. The manufacturing PMI outperformed forecasts of an increase to 52.3 and rose to 53.2 from 52.0 previously. Durable goods ordered surged by 6.5% over the month after declining by 0.1% in May. The release outperformed expectations of a more modest 3.9% growth and represented the fastest increase in orders in nearly three years. The US consumer also showed signs of resilience as the Conference Board's Consumer Confidence index unexpectedly rose from 117.3 to 121.1 in July, against the predicted slight decrease to 116.5.
  • In Europe, economic data releases were mixed over the week. The Markit Eurozone Manufacturing PMI for July disappointed slightly at 56.8, down from 57.4 and 57.2 expected, which in turn pushed the Markit Composite PMI index lower to 55.8 from 56.3. M3 money supply in the Eurozone grew as forecasted at 5.0% in the year to June, in line with the previous period. The final Eurozone consumer confidence reading for July was left unchanged at -1.7, whilst the economic and industrial confidence readings were above expectations (112.0 vs 110.8 and 4.5 vs 4.4 respectively). In Germany, the IFO business climate reading for July unexpectedly ticked up to 116.0 against 114.9 forecasted and from 115.1 previously, to hit its highest levels since German reunification. German Consumer Price Index (CPI) data for July was ahead of expectations growing 1.7% year-on-year (from 1.5% expected and 1.6% in June).
  • Japanese economic data was also mixed over the week. Headline annual consumer price inflation was unchanged at 0.4% in June. The jobless rate fell to 2.8% in June from 3.1% in May. The job-to-applicant ratio continued on an upward trend to 1.51 over the same period – the highest level since February 1974. Growth in the Japanese manufacturing sector continued to slow with the Nikkei manufacturing PMI falling from 52.4 to 52.2 in July. Retail sales recovered slightly after declining by 1.5% in May, rising by 0.2% in June vs a forecasted 0.4% increase.
  • However, there were encouraging economic releases in China last week. A fall in material costs alongside strong sales led industrial profit growth to gather pace and increase by 19.1% over the year to June; up from 16.7% in May. The Conference Board's Leading Economic Index rose by 1.6% to 171.6 while the Coincident Economic Index increased by 2.0% to 167.3.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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