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Aon Retirement and Investment Blog

Weekly Update - 25 June 2018


MARKET MOVES (Week ending June 24, 2018)
  • Global equity markets declined over the week as trade tensions between the US and China deepened with the US threatening to impose fresh tariffs worth $200 billion on Chinese imports. The US also warned European Union (EU) automakers about a potential 20% tariff on imports into the US. Both the S&P 500 Index and MSCI World Index fell by 0.9% each over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (4.0% vs. 1.9%). 
  • US Small Cap stocks outperformed Large Cap stocks over the week as the Russell 2000 Index rose by 0.1% while the S&P 500 Index fell by 0.9%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (10.4% vs. 4.0%). Growth stocks underperformed Value stocks over the week as Growth stocks fell by 1.1% while Value stocks fell by 0.6%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (9.8% vs. -1.3%).
  • The 10-year US treasury yield fell by 3bps to 2.90%. The 30-year US treasury yield fell by 1bp to 3.04%. 
  • The 20-year TIPS yield fell by 2bps to 0.86% whilst the 20-year breakeven rose by 1bp to 2.11%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over the yield on US treasuries rose by 9bps to 174bps and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 6bps to 127bps. The US high yield bond spread over US treasury yields rose by 6bps to 339bps over the week. The spread of USD denominated EM debt over US treasury yields fell by 1bp to 353bps. 
  • The S&P GSCI rose by 1.7% in USD terms over the week. The energy sector rose by 3.6% as the price of WTI crude oil rose by 5.4% to US$69/BBL. Crude oil prices rose despite oil producing countries deciding to increase the production cap by 600,000 barrels per day. Industrial metals fell by 2.2% following a decline in copper prices which fell by 4.6% to US$6,811/MT. Agricultural prices fell by 1.8% and gold prices fell by 1.3% to US$1,269/ounce. 
  • The US dollar had a mixed performance over the week. The US dollar appreciated by 0.1% against sterling, ending the week at $1.33/£. The US dollar depreciated by 0.2% against the euro, finishing the week at $1.16/€. The Japanese yen appreciated by 0.5% against the US dollar, ending the week at ¥109.90/$. The Canadian dollar weakened by 1.1% against the US dollar over the week to close at C$1.33/$. 
Economic Releases
  • Following a strong couple of weeks, US economic data was more mixed over the last week with a number of releases falling below forecasts. Provisional Purchasing Managers' Index (PMI) data showed that growth in the US manufacturing sector slowed down over the month of June with the index falling to 54.6, missing expectations of a 0.3 point decline to 56.1. Although meeting analyst forecasts, the service index fell to 56.5 from 56.8. The Philadelphia Federal Reserve Business Outlook index declined sharply to 19.9 from 34.4 and missed consensus estimates of a more modest decline to 29.0. The Conference Board's Leading Economic index increased by 0.2% in May but was below both the previous and forecasted reading of 0.4%.   
  • In the Eurozone, the Markit Services PMI improved to 55.0 in June from May's reading of 53.8. Analysts had expected the index to remain at 53.8. Conversely, the manufacturing sector decelerated as the manufacturing PMI met forecasts and dropped to 55.0 from last month’s reading of 55.5. The German Composite PMI also improved, but slightly underperformed market expectations. The increase to 54.2 in June from 53.4 in May was similarly driven by stronger performance in the services sector (increasing to 53.9 from 52.1) while the manufacturing sector was weaker than expected (55.9 for June against forecasts of 56.3). Euro Area Consumer Confidence fell to -0.5 in June from 0.2 in May but remains high when compared to previous years.
  • In Japan, growth in the manufacturing sector picked up in June with the preliminary Nikkei PMI manufacturing index rising to 53.1 from May’s reading of 52.8. Headline consumer price inflation stood at 0.7% for the year to May, ending a two month slowdown in inflation. Japan's trade balance swung into a ¥578.3 billion deficit in May from April's ¥624.6 billion surplus. This worse than expected figure was due to faster growth of imports compared to exports. Exports grew by 8.1% for the year to May while imports grew by 14.0% which was far ahead of the expected 8.0% growth.   
  • Trade tensions continue to dominate news flow in China. In a bid to provide some additional cushioning to the slowing economy in the face of potentially damaging effects from trade tariffs, the People's Bank of China said it would reduce the reserve requirement ratio for large commercial banks by 0.5%.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.
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