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Aon Retirement and Investment Blog

Weekly Update - 08 May 2017


MARKET MOVES - Week Ending May 05, 2017
  • Global equity markets continued their upward momentum encouraged by Eurozone developments. Pro-Europe candidate Emmanuel Macron’s lead over Marine Le Pen in opinion polls, strong European corporate earnings and Q1 2017 economic growth data supported the equity rally. The MSCI World Index rose by 1.1% over the week, outperforming S&P 500 which rose 0.7% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (9.3% vs. 7.9%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell by 0.2% over the week whereas S&P 500 rose 0.7% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (7.9% vs. 3.4%). Growth stocks outperformed Value stocks last week (0.8% vs. 0.4%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (12.5% vs. 3.8%).
  • 10 year US Treasury yield rose by 7bps and the 30 year US Treasury yield rose by 3bps to 2.35% and 2.98% over the week.
  • 20 year TIPS yield rose by 11bps to 0.61% over the week. 20 year Breakeven fell by 3bps to 1.85%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 165bps over the week. The Merrill Lynch US Corporate Index fell by 1bp to end the week at 121bps. The US high yield bond spread over US treasury yields rose by 7bps to 382bps.The spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 301bps.
  • The S&P GSCI fell by 3.1% in USD terms over the week. The energy sector fell by 5.1% as the price of WTI crude oil declined by 6.2% to $46/BBL. Crude oil prices fell due to concerns over OPEC’s stance on an output cut which will be decided at the next OPEC meeting later in the month. Industrial metals fell by 1.9% as copper prices decreased by 2.6% to $5,563/MT. Agricultural prices rose by 0.6% whilst the gold price fell by 3.2% to $1,228/ounce.
  • The US dollar depreciated against major currencies (except for the yen) over the week. The US dollar depreciated by 0.2% against sterling, ending the week at $1.30/£. US dollar weakened by 0.9% against the euro, finishing the week at $1.10/€. The Japanese yen weakened by 1.0% against the US dollar, ending the week at ¥112.64/$.
Economic Releases
  • US employment rebounded after March's lacklustre reading with nonfarm payrolls increasing by 211k In April. As a result, the unemployment rate unexpectedly slipped to a near 10-year low of 4.4% amid expectations of a slight increase from 4.5% in the previous month to 4.6%. However, the tighter labour market conditions were not reflected in annual wage growth which missed expectations of a modest increase and cooled to 2.5% from 2.6%. The keenly watched Institute of Supply Management (ISM) manufacturing index (a gauge of national factory activity) also disappointed, dropping by 2.4 points to 54.8 – the second consecutive monthly fall after reaching a more than two year high in February. Conversely, growth in the service sector picked up over April as the ISM non-manufacturing index outperformed expectations and rose by 2.3 points to 57.5, retracing most of the 2.4 point fall in the previous month.
  • In the Eurozone, the advance GDP growth figures for Q1 2017 showed that the economy grew by 0.5% over the quarter as expected and 1.7% on an annualised basis. Retail sales grew for a third month in a row in March, rising by 0.3% despite rising prices. This was ahead of the 0.1% expected over the period. Unemployment remained at an eight-year low of 9.5% in March, 0.1% higher than analyst forecasts. In Germany, despite beating flash estimates, the Services PMI fell from 55.6 to 55.4. The manufacturing PMI, meanwhile, was unchanged and remains near a six-year high at 58.2.
  • In Japan, there were few economic releases last week due to public holidays. The final reading of the Nikkei composite PMI was revised down to 52.6 in April from 52.9. Both the services and manufacturing PMI were revised downwards to 52.6 and 52.7 from 52.9 and 52.8 respectively. Whilst not a keenly watched economic release, year-on-year vehicle sales growth eased considerably from 13.8% to 5.4%.
  • The Caixin PMI, which focuses more on smaller and medium-sized companies, echoed the disappointment from last week's official PMI readings. The Caixin manufacturing PMI dropped to 50.3 which was below consensus estimates of a modest 0.1 point rise to 51.3. Whilst still in expansionary territory (above the 50 level threshold), April's reading marks the slowest pace of growth since September 2016. Similarly, growth in the service sector slowed to its lowest level in nearly a year with the Caixin services PMI falling from 52.2 to 51.5.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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