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Aon Retirement and Investment Blog

Weekly Update - 05 March 2018

MARKET MOVES (Week ending March 04, 2018)

  • Global equity markets fell over the week in which upbeat comments from the new US Federal Reserve Chair Jerome Powell led to speculation that there could potentially be four rate hikes in 2018. US President Donald Trump also announced that he would impose import tariffs on steel and aluminum which escalated global trade tensions. The MSCI World Index fell 2.3% over the week, underperforming the S&P 500 Index, which fell 2.0% over the same period. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (1.0% vs. -0.3%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 Index fell 2.0% whilst the Russell 2000 Index fell 1.0%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (1.0% vs. 0.0%). Value stocks underperformed Growth stocks over the week (-2.1% vs. -1.8%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (4.2% vs. -2.0%).
  • The 10 year US Treasury yield was unchanged at 2.86% whilst the 30 year US Treasury yield fell by 2bps to 3.14%.
  • The 20 year TIPS yield fell by 3bps to 0.89% and the 20 year breakeven inflation rate rose by 1bp to 2.10%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over treasury yields and Bank of America Merrill Lynch US Corporate Index credit spread rose by 5bps each to 140bps and 105bps respectively. The US high yield bond spread over US treasury yields rose by 7bps to 365bps. The spread of USD denominated EM debt over US treasury yields finished the week 3bps higher at 290bps.
  • The S&P GSCI fell by 2.2% in USD terms over the week. The energy sector fell by 3.7% as the price of WTI crude oil decreased by 3.7% to US$61/BBL. Industrial metals decreased by 2.0% as copper prices fell by 2.8% to US$6,864/MT. Agricultural prices rose by 3.6% whilst gold prices fell by 0.6% to US$1,320/ounce.
  • The US dollar depreciated against major currencies (except for sterling) over the week. The US dollar strengthened by 1.4% against sterling, ending the week at $1.38/£. The US dollar depreciated by 0.1% against the euro, ending the week at $1.23/€. The Japanese yen strengthened by 1.1% against the US dollar, ending the week at ¥105.48/$.
Economic Releases
  • The second reading of Q4 real GDP growth showed the US economy was slightly less strong than initially thought. GDP growth was revised down to 2.5% from 2.6%, as stronger consumer spending led to greater import demand as well as inventory depletion. Durable goods orders contracted for a second successive month, falling by a further 3.7% in January after December's 2.6% decline. Analysts had expected a smaller 2.0% decrease to start the year. Similarly, new home sales unexpectedly fell for a second month in a row; decreasing by a further 7.8%, below forecasts of a 3.5% increase and also more than December's 7.6% fall. A measure of manufacturing activity, the Institute of Supply Management's manufacturing index, however, pointed to further economic momentum in the US with the index reaching 60.8; the highest level since May 2004, above the previous reading of 59.1. Core consumer price inflation (CPI), as measured by the core personal consumption expenditure (PCE) price index, remained as expected at 1.5% year-on-year.
  • Eurozone economic releases were largely in line with expectations this week. Preliminary Eurozone inflation estimates for February increased by 1.2% over the year, slightly lower than the 1.3% rise in January. Core inflation for February met expectations, with prices rising 1.0% over the year. In Germany, preliminary CPI data was marginally softer than expected. Inflation slowed to 1.4%. This was down from 1.6% previously and 1.5% expected. Final manufacturing PMI data for the Eurozone in February ticked up to 58.6 from 58.5. In Germany, final manufacturing PMI data was revised up to 60.6 from 60.3. Consumer confidence in the Eurozone in February met expectations and remained at 0.1. Meanwhile, Germany's GfK consumer confidence reading for March indicated slightly lower sentiment, as the index fell from 11.0 to 10.8 in February. 
  • In Japan, January industrial production fell by 6.6% on a provisional basis, more than an estimated fall of 4.0% and the steepest fall since the 2011 earthquake. Retail sales growth slowed to 1.6% over the year to January, below the forecast of 2.4%. Japan's labor market tightened further with the jobless rate falling to a 24-year low of 2.4% in January from 2.7% while the job-to-application ratio remained at 1.59, below forecasts of 1.60. The final reading for February's Nikkei manufacturing PMI improved marginally to 54.1 from 54.0.
  • The official PMI releases indicated slowing economic growth in China. The manufacturing PMI unexpectedly fell to 50.3 from 51.3. Analysts expected the index to slip to 51.1. The non-manufacturing PMI fell to 54.4 from 55.3, failing to meet estimates of 55.0. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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