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Aon Retirement and Investment Blog

Weekly Update - 18 March 2019 (UK/Europe)


  • Last week saw a series of Brexit votes in Parliament. MPs again voted against Theresa May’s Brexit deal with concessions from the EU over the Northern Ireland backstop only able to convince a small handful of MPs to switch to backing the deal. MPs then voted to rule out any No Deal Brexit and voted for the Government to request an extension to Article 50 from the EU at the 21-22 March summit following a third ‘meaningful vote’ by the 20 March – though this may be delayed or cancelled if the Government believes it will fail. If the deal is passed, an extension to 30 June 2019 will likely be requested. If not, then the extension will likely be longer. Any extension requires unanimous approval from the leaders of the remaining 27 EU countries.
  • Despite claims of positive progress made in U.S.-China trade negotiations, news reports have suggested that a meeting between the Presidents of China and the US would be pushed back to June from March. Elsewhere, following a meeting with Leo Varadkar, the Irish Prime minister, U.S. President Donald Trump warned that his administration could inflict “pretty severe” economic pain on the EU if the block doesn’t negotiate a trade deal with the U.S.
  • In the U.S., the Republican-led Senate voted to block the President’s declaration of national emergency to secure funds for a U.S.-Mexico Border wall. However, President Trump issued the first veto of his administration to block this measure by the Senate.


  • Global equity markets rose over the week as market sentiment improved and investors looked through recently weak economic data. This was also supported by expectations that global monetary and fiscal policy would remain accommodative. The MSCI AC World Index rose by 2.6% in local currency terms and rose by 0.8% in sterling terms. The Information Technology sector was the best performer at (+4.2%) in local currency terms. The Industrials sector was the worst performer at (+1.3%) in local currency terms.
  • U.S. equities were the best performing region in local currency terms (+2.9%), the largest weekly advance since late November, as the index bounced back from last week's rare weekly decline despite soft economic data. Technology stocks were a key driver, with the Nasdaq now the highest returning major index year-to-date. Asia Pacific equities were the worst performing region in local currency terms (+0.4%) and sterling terms (-1.2%) as expectations of an imminent US-China trade deal faded. UK equities were the best performing region in sterling terms (+1.8%) following Parliament's decision to rule out any form of No Deal Brexit and back an extension to Article 50.
  • The 10-year gilt yield rose by 3bps to 1.21% and the 20-year gilt yield rose by 2bps to 1.65%. 10-year US treasury yields fell by -4bps to 2.59% in a week when US inflation slowed to 1.5%. German Bund yields rose by 2bps to 0.08% and French government bond yields rose by 6bps to 0.46%. Spanish government bond yields rose by 13bps to 1.18% in a week where campaigning stepped up ahead of the upcoming 28 April election.
  • The Over 5-year real yield fell by 4bps to -1.73% and the UK 20-year real yield fell by 3bps to -1.81%. 20-year breakeven inflation rose by 5bps to 3.47%.
  • U.S. high yield bonds outperformed over the week, returning 0.8%. The U.S high yield bond spread over US treasury yields fell by 23bps to 395bps over the week. The spread of USD denominated EM debt over U.S. treasury yields fell by 10bps to 351bps over the week. The sterling non-gilt spread over UK gilt yields (based on the Merrill Lynch index) fell by 5bps to 129bps over the week.
  • The S&P GSCI index rose by 2.3% in USD terms over the week. The S&P GSCI Energy index rose by 2.5% as the price of Brent Crude oil rose by 2.2% to US$67/BBL. Industrial metal prices rose by 0.9% as copper prices rose by 0.2% to US$6,410/MT. Agricultural prices rose by 2.7% and gold prices rose by 0.5% to US$1,304/Oz.
  • Sterling appreciated by 1.7% on a trade weighted basis over the week when MPs voted to rule out any form of No Deal Brexit and to extend Article 50. Sterling strengthened by 2.0% against the US dollar and rose 1.2% against the euro, ending the week at $1.33/£ and €1.17/£. The U.S. dollar increased by 0.4% against the Japanese yen, ending the week at ¥111.58.


  • In the US, the Consumer Price Index (CPI) rose by 0.2% in the month of February, in line with expectations. However, on an annual basis consumer price inflation was at the lowest level since late 2016 at 1.5%. Core inflation, which excludes volatile food and energy components, came in at 2.1% over the same annual period. Analysts had forecasted unchanged inflation readings of 1.6% and 2.2% respectively. Real average weekly earnings rose by 1.6% in the year to February, following on from the 1.9% growth recorded in the year to January. Whilst a 0.2% rebound in US retails sales was recorded in January despite consensus estimates of a flat reading, December's reading was revised lower from an initial estimate of -1.2% to -1.6%, the worst reading in over 9 years. Industrial production edged up by 0.1% in February, up from the revised contraction of 0.4% recorded in the previous month, but below expectations for a 0.4% growth.
  • In the UK, the economy grew by 0.2% in the three months to January, in line with expectations. Industrial production recorded its first rise since July 2018 as it increased by 0.6% in the month of January, rebounding from the 0.5% contraction in December and beating expectations of a 0.2% increase. Manufacturing production rose by 0.8%, well ahead of the 0.2% increase expected by the analysts and rebounding from the 0.7% fall recorded in the previous month. The trade deficit widened to £3.8bn in January from a revised deficit of £3.4bn in December due to a fall in car exports. Elsewhere, the Rightmove House Price Index fell by 0.8% in the year to March, following the 0.2% growth recorded previously.
  • Eurozone industrial production increased by 1.4% in January, reversing the 0.9% decline recorded in December and beating analyst forecasts of a 1.0% increase. In Germany, industrial production fell sharply by 0.8% against expectation for a 0.5% increase. However, December’s reading was revised higher to a 0.8% growth from an initial estimate of 0.4% decline. The German trade surplus decreased to €14.5 billing in January from €17.2 billion in the previous year as imports (+5.0% YoY) grew faster than exports (+1.7% YoY).
  • The Bank of Japan (BoJ), as expected, left its ultra-low interest rate policies unchanged in its latest monetary policy meeting. The BoJ suggested it is likely that Japan's economy will contract again in Q1 2019, for the third time in five quarters. Core machinery orders fell at the fastest rate in over a year, falling by 5.4% in the month of January, worse than the consensus estimates of a 1.5% fall. However, the Tertiary Industry index rebounded by 0.4% in January against a forecasted decrease of 0.3%. Japan posted a trade surplus of ¥339.0bn in February, higher than analyst forecasts of a ¥305.1bn surplus and rebounding from January’s deficit of ¥1,415.6bn. Exports declined by 1.2% in the year to February, worse than the forecasted 0.6% decline but better than the previous month’s decline of 8.4%. Imports fell by 6.7% over the same period, slightly worse than the estimated 6.4% decrease but significantly worse than the previous month’s decline of 0.8%.
  • In China, industrial production grew by 5.3% in the year to date (compared to the same period last year). This is slower than the estimated growth of 5.6% and the 6.2% increase recorded previously; indicating the slowest pace of growth in seventeen years. Fixed asset investment grew by 6.1%, in line with consensus estimates over the same period. Jobless rate rose by 0.4% to 5.3% in February. Elsewhere, Chinese central bank officials pledged not to de-value their currency in order to boost exports, helping to resolve a key issue in the US-China trade negotiations.

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.

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