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Aon Retirement and Investment Blog

Weekly Update - 02 July 2018

MARKET MOVES (Week Ending July 1, 2018)
 
Equities

  • Global equity markets declined over the week as trade tensions between the US and China continued. The Trump administration’s decision to limit Chinese investments in US technology companies also worried investors. Markets recovered the majority of their initial losses later in the week as European Union leaders agreed an immigration deal and China eased restrictions on foreign investment. The S&P 500 Index fell by 1.3% over the week, underperforming the MSCI World Index which fell by 1.2%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (2.6% vs. 0.8%). 
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 Index fell by 2.5% while the S&P 500 Index fell by 1.3%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (7.7% vs. 2.6%). Growth stocks underperformed Value stocks over the week as growth stocks fell by 1.7% while value stocks fell by 1.0%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.9% vs. -2.2%).
Bonds
  • The 10-year US treasury yield fell by 4bps to 2.85%. The 30-year US treasury yield fell by 5bps to 2.99%. 
  • The 20-year TIPS yield fell by 5bps to 0.81% and the 20-year breakeven fell by 1bp to 2.10%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over the yield on US treasuries remained unchanged at 174bps and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 2bps to 129bps. The US high yield bond spread over US treasury yields rose by 22bps to 361bps over the week. The spread of USD denominated EM debt over US treasury yields rose by 14bps to 367bps.
Commodities  
  • The S&P GSCI rose by 3.4% in USD terms over the week. The energy sector rose by 6.0% as the price of WTI crude oil rose by 8.1% to US$74/BBL. Crude oil prices rose as US inventory levels experienced a steep drop and the US urged its allies to stop importing crude oil from Iran. Industrial metals fell by 2.0% following the 2.4% decline in copper prices to US$6,646/MT. Agricultural prices fell by 2.0% and gold prices fell by 1.5% to US$1,250/ounce. 
Currencies
  • The US dollar had a mixed performance over the week. The US dollar appreciated by 0.5% against sterling, ending the week at $1.32/£. The US dollar depreciated by 0.3% against the euro, finishing the week at $1.17/€. The US dollar appreciated by 0.8% against the Japanese yen, ending the week at ¥110.77/$. The Canadian dollar strengthened by 1.4% against the US dollar over the week to close at C$1.32/$. 
Economic Releases
  • US economic data was a little disappointing over last week. Finalized GDP data showed that the US economy slowed by more than initially expected over the first quarter. Quarter-on-quarter annualised real GDP growth was revised lower to 2.0% from 2.2%, driven by the weakest consumer spending (an increase of only 0.9%) in almost five years. New orders for US-made capital goods unexpectedly fell in May with non-defense orders for capital goods (excluding aircraft) dipping by 0.1%, below expectations of a 0.3% increase. The US Federal Reserve's (Fed) preferred measure of inflation, the core Personal Consumption Expenditure price index, hit the 2.0% inflation target for the first time in six years. 
  • In the Eurozone, June CPI inflation accelerated to 2.0% from 1.9% although core inflation slowed to 1.0% from 1.1%. Both moves were in line with expectations. Broad Money Supply (M3) growth in the Eurozone was higher than expected in May, increasing by 4.0%, but remains below the c.5.0% growth seen over 2016 and 2017. In Germany, the IFO business climate index declined across all sectors, falling to 101.8 in June. Retail sales disappointed with a 2.1% decrease over May which more than offset the downwardly revised 1.6% gain over April. Over the year, retail sales declined by 1.6%, lower than consensus estimates of a 1.9% increase. Meanwhile, German unemployment remained at 5.2% in June despite a higher-than-expected 15k fall in unemployment over the month.
  • Data from Japan wasn’t much better. Japanese industrial production edged 0.2% lower in the month of May based on preliminary data. Although above forecasts of a 1.0% decline, May's reading was down from the 0.5% growth in April. Japan’s labour market continued to tighten as the jobless rate for May fell to 2.2% (the lowest reading since 1992). The job-to-applicant ratio reached its highest level since 1974, inching 0.01 point higher to 1.6. Retail sales dropped by 1.7% over May, far worse than the forecasted 0.8% fall and the downwardly revised 1.3% reading for April. The consumer confidence index in June marginally fell to 43.7 from 43.8. 
  • The official Chinese manufacturing PMI for June fell by 0.4 points to 51.5 as trade war concerns between the US and China intensified. Sentiment in service industries picked up slightly with the non-manufacturing index rising to 55.0 from 54.9 over the month. Although slowing from the previous month's strong upturn, industrial profit growth for the year to May remained firmly in double-digit territory at 21.1% from 21.9%.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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.


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