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Aon Retirement and Investment Blog

Weekly Update - 23 July 2018


MARKET MOVES (Week ending July 22, 2018)
  • Global equity markets remained broadly unchanged over the week even though US president Donald Trump threatened to impose tariffs on all Chinese imports to the US, worth US$505 billion a year, and criticized the higher interest rate policy of the US Federal Reserve (Fed). Over the week, the S&P 500 Index marginally underperformed the MSCI World Index as the S&P 500 Index remained unchanged while the MSCI World Index rose by 0.2%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (5.9% vs. 3.2%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 Index was flat while the Russell 2000 Index rose by 0.6%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (11.2% vs. 5.9%). Growth stocks marginally outperformed Value stocks over the week as growth stocks rose by 0.1% whilst value stocks returns were flat, as measured by the MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (12.5% vs. -0.2%).
  • The 10-year US treasury yield rose by 5bps to 2.88% and the 30-year US treasury yield rose by 9bps at 3.02%, supported by strong retail sales data and the Fed chair Jerome Powell’s upbeat congressional testimony.
  • The 20-year TIPS yield rose by 7bps to 0.85% and the 20-year breakeven rose by 2bps to 2.11%. 
  • The spread of the Bloomberg Barclays Capital Long Credit Index over the yield on US treasuries fell by 1bp to 165bps and the Bank of America Merrill Lynch US Corporate Index credit spread fell by 2bps to 122bps.The US high yield bond spread over US treasury yields fell by 7bps to 355bps and the spread of USD denominated EM debt over US treasury yields fell by 2bps to 338bps over the week.
  • The S&P GSCI fell by 1.2% in USD terms over the week. The energy sector fell by 2.2% as the price of WTI oil declined by 0.8% to US$70/BBL. Industrial metals fell by 0.9% following the decline in copper prices which fell by 1.5% to US$6,073/MT. Agricultural prices rose by 2.7% while gold prices fell by 1.0% to US$1,229/ounce. 
  • The US dollar weakened against all major currencies over the week. The US dollar depreciated by 0.5% against sterling, ending the week at $1.33/£. The US dollar depreciated by 0.7% against the euro, finishing the week at $1.18/€. The US dollar depreciated by 0.3% against the Japanese yen, ending the week at ¥110.45/$. The US dollar fell by 0.4% against the Canadian dollar over the week to close at C$1.31/$.  
Economic Releases
  • Against a backdrop of lower income taxes, higher employment and rising wages, consumer spending in the US continued to grow over June. Retail sales rose for a fifth consecutive month, increasing by 0.5% as expected. Moreover, May's reading was upwardly revised from 0.8% to 1.3% - suggesting US GDP may accelerate over the second quarter as consumer activity accounts for a large part of economic activity. June industrial production just exceeded consensus estimates at 0.6% which more than offset the downwardly revised 0.5% decline seen in May. However, the housing market has seemingly not kept up with other areas of the economy with housebuilding plummeting by 12.3% in June to a seasonally-adjusted 1,173k; a nine month low. Analysts had expected a far more modest 2.2% fall over the month. 
  • In the Eurozone, June CPI was confirmed at 2.0% but core inflation was lowered slightly to 0.9%. In Germany, producer price inflation continued to accelerate with prices growing by 3.0% in the year to June 2018. A jump in energy prices was once again the major driver while costs also increased for both intermediate and capital goods. The seasonally-adjusted Eurozone trade balance came in below expectations for the fourth month in a row, falling by €1.2bn to €16.9bn in May. The seasonally-adjusted ECB current account surplus fell sharply to its lowest level since March 2015.
  • In Japan, headline CPI remained at 0.7% for the year to June but below consensus estimates of 0.8%. Core inflation, which excludes more volatile food and energy components, increased to 0.8% from 0.7%. Japan's trade balance rebounded to a ¥721.4 billion surplus in June from May’s ¥580.5 billion deficit and far ahead of analyst forecasts of a ¥531.2 billion surplus. This was due to faster growth of exports compared to imports. Exports grew by 6.7% for the year to June while imports grew by 2.5% over the same period – however, both were below expectations.
  • As expected, the Chinese economy decelerated from an annualized 6.8% to 6.7% over the second quarter of 2018. Slowing infrastructure investment weighed on overall growth in the world's second largest economy with fixed asset investment in urban regions decreasing to 6.0% for the year to June. A similar trend was observed with industrial production, as production growth slowed to 6.0% for the year to June; down from 6.8% in the previous month and below 6.5% forecasted. Conversely, retail sales growth accelerated to 9.0% over the year to June from 8.5% in May, beating analyst forecasts of 8.8% growth.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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