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Aon Retirement and Investment Blog

Weekly Update - 19 March 2018

MARKET MOVES (Week ending March 18, 2018)

  • Global equity markets edged lower over the last week. Persistent fears over the impact of protectionist US trade policies on global trade and political uncertainty over the change of personnel in the White House troubled investors. The MSCI World Index fell by 0.7% over the week, outperforming the S&P 500 Index, which fell by 1.2% over the same period. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (3.4% vs. 1.9%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 Index fell 1.2% whilst the Russell 2000 Index fell 0.7%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (3.5% vs. 3.4%). Value stocks underperformed Growth stocks over the week (-1.2% vs. -1.1%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.2% vs. -0.2%).
  • The 10 year US Treasury yield fell by 5bps to 2.84% and the 30 year US Treasury yield fell by 8bps to 3.08% as weaker retail sales data resulted in lowered US growth expectations.
  • The 20 year TIPS yield fell by 2bps to 0.90% and the 20 year breakeven inflation rate fell by 4bps to 2.03%.
  • 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 4bps each to 144bps and 110bps respectively. The US high yield bond spread over US treasury yields rose by 7bps to 360bps. The spread of USD denominated EM debt over US treasury yields finished the week 6bps higher at 292bps.
  • The S&P GSCI was unchanged in USD terms over the week. The energy sector rose by 0.9% as the price of WTI crude oil increased by 0.4% to US$62/BBL. Industrial metals decreased by 1.1% as copper prices too decreased by 1.1% to US$6,864/MT. Agricultural prices fell by 1.8% and gold prices fell by 0.6% to US$1,314/ounce.
  • The US dollar depreciated against major currencies (except for euro) over the week. The US dollar weakened by 0.4% against sterling, ending the week at $1.39/£. The US dollar appreciated by 0.3% against the euro, ending the week at $1.23/€. The Japanese yen strengthened by 0.8% against the US dollar, ending the week at ¥106.10/$.
Economic Releases
  • A further positive US jobs report and inflation figures published over the week enhanced the likelihood of an impending rate hike by the US Federal Reserve. Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 226,000. US inflation picked up in February, albeit at a slower pace than the 0.5% jump experienced in January. The Consumer Price Index (CPI) rose by 0.2% over February, in line with analyst forecasts. In the twelve months to February, CPI increased 2.2%, ticking up from 2.1% previously. Consumer sentiment in the US, as measured by the University of Michigan consumer sentiment index, reached a 14-year high of 102 in March, from 99.7 in February, topping the consensus economist forecast of 99.3. However, retail sales unexpectedly fell for the third consecutive month in February, despite Trump’s recent tax cuts, declining 0.1%. Analysts had forecasted a 0.3% growth in sales. Industrial production bounced back in February, with output unexpectedly increasing 1.1% from the prior month’s downwardly revised 0.3% decline. Housing market data showed a slowing of construction over February as new housing starts fell 7% for the month to a seasonally-adjusted annual rate of 1.2m units.
  • There was little in the way of Eurozone economic releases over the week. Final Eurozone inflation data for February was lower than expected, measuring 1.1% over the year, shy of original forecasts of 1.2%. Month-on-month inflation was confirmed at 0.2% for February. Final inflation for Germany in February was confirmed at 1.4% over the year, and 0.5% over the month. Meanwhile, Eurozone industrial production in January unexpectedly declined by 1.0% over the month, down from 0.4% growth previously, and analyst forecasts of a 0.5% decline. 
  • In Japan, industrial production fell by 6.8% in January, greater than the initially reported 6.6% decline. However, core machine orders recovered in January, to grow by 8.2%, up from the revised 9.3% decline in the previous month and ahead of consensus estimates of 5.2% growth. Over the year to February, the producer price index increased by 2.5%, in line with economists' forecasts but marginally slower than the previous month’s report of 2.7% growth. The Tertiary Industry index moved 0.6% lower in January, overshooting the expected fall of 0.3%.
  • In China, industrial production grew by 7.2% for the year to February, up from 6.6% in the previous month and above forecasts for 6.2% growth. Fixed asset investment in urban regions also grew, increasing by 7.9% for the year to February, from the prior month’s 7.2% increase. However, retail sales growth over the year to February marginally missed expectations, increasing 9.7%; slightly down from 10.2% growth reported in January. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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