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Aon Retirement and Investment Blog

Weekly Update - 04 June 2018

MARKET MOVES (Week ending June 03, 2018)

  • Global equity markets moved slightly lower over the week. Markets initially fell in the wake of political turmoil in Europe and the imposition of steel and aluminum tariffs on the European Union, Canada and Mexico by the US. However, equities recovered the majority of losses later in the week, supported by the formation of a government in Italy and Donald Trump’s willingness to hold talks with his North Korean counterpart Kim Jong-un. The MSCI World Index remained flat, underperforming the S&P 500 Index which rose by 0.5% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (3.1% vs.1.6%).
  • US Small Cap stocks outperformed Large Cap stocks over the week as the Russell 2000 Index rose by 1.3% while the S&P 500 Index rose by 0.5%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (7.8% vs. 3.1%). Growth stocks outperformed Value stocks over the week as Growth stocks rose by 1.0% while Value stocks rose by 0.1%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (8.5% vs. -1.9%).
  • The 10 year US treasury yield fell by 4bps to 2.89% and the 30 year US treasury yield fell by 5bps to 3.04%. 
  • The 20 year TIPS yield fell by 3bps to 0.89% and the 20 year breakeven fell by 2bps to 2.07%.
  • Both the spread of the Bloomberg Barclays Capital Long Credit Index over Treasury yields and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 5bps each to 163bps and 121bps respectively. The US high yield bond spread over US treasury yields rose by 2bps to 355bps over the week. The spread of USD denominated EM debt over US treasury yields rose by 18bps to 341bps.
  • The S&P GSCI fell by 1.0% in USD terms over the week. The energy sector fell by 1.4% as the price of WTI crude oil decreased by 3.0% to US$66/BBL. Industrial metals rose by 1.4% despite copper prices decreasing by 1.0% to US$6,814/MT. Agricultural prices fell by 1.9% and gold prices fell by 0.7% to US$1,295/ounce.
  • With the exception of the yen, the US dollar depreciated against major currencies over the week.  The US dollar weakened by 0.1% against sterling, ending the week at $1.33/£. The US dollar depreciated by 0.1% against the euro, finishing the week at $1.17/€. The Japanese yen depreciated by 0.3% against the US dollar to close the week at ¥109.57/$.
Economic Releases
  • In the US, the second reading for first quarter GDP growth was lowered from the initial annualized estimate of 2.3% to 2.2% amid downward revisions to both consumer spending and inventory investment. More recent economic releases, however, point to a strong US economy. The Institute of Supply Management's (ISM) manufacturing index exceeded analyst forecasts of 58.2 and rose to 58.7 from 57.3. Underlying components of the index (employment, prices paid and new orders) all improved in May. Employment data was also positive with 223k non-farm jobs added in May; ahead of expectations of 190k jobs. The unemployment rate declined to an eighteen-year low of 3.8% and wage growth accelerated to 2.7% for the year to May 2018, reigniting inflationary concerns. 
  • Economic releases in the Eurozone were more positive than in the previous week. Eurozone consumer prices (CPI) growth came in higher than expectations at 1.9%, a significant increase from the prior reading of 1.2%. This was largely driven by a 6.1% increase in energy prices over the month and continued high food, alcohol and tobacco price growth. Core CPI also increased in May to 1.1%. This moves inflation in the Eurozone closer to the ECB's target of below, but close to, 2%. Broad Money Supply also increased in April to 3.9% from 3.7%. German retail sales growth came in below expectations at 1.2% for April on a year-on-year basis despite a strong increase over the month. However, the previous reading was revised up from 1.3% to 1.7%.
  •  Japanese industrial production inched 0.3% higher in the month of April based on preliminary data. This was, however, down from 1.4% growth in March due to lower production of electronic components. Both the jobless rate and job-to-applicant ratio for April remained unchanged at 2.5% and 1.6% respectively. Retail sales for the year to April rose by 1.6%, better than the previous reading and consensus estimates of 1.0%. The final reading for the Nikkei manufacturing PMI for May increased to 52.8 from the preliminary reading of 52.5. The consumer confidence index in May improved to 43.8 from 43.6, but missed expectations of an increase to 43.9. 
  • The official Chinese manufacturing PMI for May came in ahead of forecasts of the index remaining at 51.4, by increasing to 51.9. This reflects the fastest pace that the sector has grown since October last year. Growth also accelerated in other areas of the economy with the non-manufacturing index beating consensus estimates and rising to 54.9 from 54.8 over the same period. However, the Caixin manufacturing PMI, which focuses more on small and medium-sized Chinese business, was unchanged in May at 51.1.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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