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Aon Retirement and Investment Blog

Weekly Update - 28 March 2017


MARKET MOVES - Week Ending March 24, 2017

  • Global equities fell over the week after the Trump administration struggled to pass the healthcare reform bill and energy prices nudged lower. The MSCI World Index fell by 0.9% over the week, outperforming S&P 500 which fell 1.4% over the same period. On a year to data basis, MSCI World has outperformed S&P 500 (5.9% vs. 5.2%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 2.6% over the week whereas the S&P 500 fell 1.4%. On a year to date basis, S&P 500 has outperformed Russell 2000 (5.2% vs. 0.1%). Value stocks underperformed Growth stocks last week (-1.7% vs. -1.2%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (8.1% vs. 2.7%).
  • 10 year US Treasury yield fell by 9bps and the 30 year US Treasury yield fell by 10bps, ending the week at 2.41% and 3.01% respectively on concern that tax cut plans could be delayed.
  • 20 year TIPS yield fell by 6bps to 0.55% over the week. 20 year Breakeven fell by 4bps at 1.95%.
  • Both the Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index rose by 1bp to end the week at 168bps and 123bps respectively. The US high yield bond spread over US treasury yields rose by 16bps to 407bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps higher at 308bps. 
  • The S&P GSCI fell by 1.3% in USD terms over the week. The energy sector fell by 1.5% as the price of WTI crude oil fell by 2.2% to $47/BBL. Crude oil prices fell after the EIA (Energy Information Administration) reported a higher than expected rise in US inventories. Industrial metals fell by 0.7% as copper prices decreased by 2.4% to $5,777/MT. Agricultural prices fell by 2.6% whilst the gold price rose by 1.6% to $1,249/ounce.
  • The US dollar depreciated against major currencies over the week as uncertainty over future fiscal reforms under the Trump administration remains. The US dollar depreciated by 1.0% against sterling, ending the week at $1.25/£. US dollar weakened by 0.6% against the euro, finishing the week at $1.08/€. The Japanese yen rose by 1.5% against the US dollar, ending the week at ¥111.05/$.
Economic Releases
  • Economic releases were fairly mixed last week in the US. The provisional number of goods ordered over February rose by 1.7%. Although this was below the upwardly revised 2.3% growth in goods ordered in January, it was above expectations of a 1.4% increase. The current account deficit also unexpectedly narrowed over the fourth quarter of 2016, shrinking to $112.4bn. Survey forecasts had the deficit rising to $129bn. On a less positive note, the flash Purchasing Managers' Indices (PMI) for both manufacturing and services fell for a second successive month; an indication of a slight moderation in GDP growth in the first quarter of 2017. The number of unemployment benefit claimants rose to 261k from a revised 246k. The measure is still below the 300k threshold which is associated with a robust labour market.
  • In the Eurozone, the Markit PMI composite increased to 56.7 in March which represents the highest level since April 2011. The manufacturing PMI rose from 55.4 to 56.2 and the services PMI also rose from 55.5 to 56.5, 0.9 and 1.2 points ahead of expectations respectively. The rise was driven by the German economy where the composite index grew by 0.9 points to 57.0, its highest level for nearly six years. The German manufacturing PMI recorded a near-six year high of 58.3, against expectations of a modest decrease from 56.8 to 56.5. In addition, consumer confidence surpassed consensus estimates and increased from -6.2 to -5.0, 0.9 points better than expected.
  • Japanese economic data was encouraging over the week. The Nikkei Flash manufacturing PMI remained in expansionary territory at 52.6 but declined from 53.3 in February due to a slowing in output and export orders. Japan recorded a trade surplus of ¥813bn in February, sharply up from the deficit of ¥1087bn posted in January. The surplus beat analyst forecasts of a ¥807bn surplus, as exports rose by 11.3% over the year to February and imports grew by 1.2% over the same period. The strong growth in exports was driven by increased demand for automobile components from China.
  • There was very little in terms of economic releases in China last week. The Conference Board's leading economic index rose at a faster rate of 1.2% in February from the 0.9% increase in January. The coincident economic indicator which measures current economic activity increased for the first time in three months, rising by 1.3% compared to the 0.3% fall in January.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
Click here for index descriptions.

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