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Aon Retirement and Investment Blog

Weekly Update - 14 May 2018

MARKET MOVES (Week ending May 13, 2018)

  • Global equity markets advanced over the week supported by an encouraging set of first-quarter earnings reports and rising commodity prices. The MSCI World Index rose 2.2% underperforming the S&P 500 Index which rose by 2.5% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (2.7% vs.2.4%)
  • US Small Cap stocks outperformed Large Cap stocks over the week as the Russell 2000 Index rose by 2.7% whilst S&P 500 Index rose 2.5%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (5.1% vs. 2.7%). Value stocks underperformed Growth stocks over the week (2.3% vs. 2.7%) as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.3% vs. -1.6%).
  • The 10 year US Treasury yield rose by 2bps to 2.97% whilst the 30 year US Treasury yield fell by 1bp to 3.11%. The 10 year treasury yields touched the 3.0% mark before reversing later due to softer US inflation data.
  • The 20 year TIPS yield rose by 1bp to 0.88% whilst the 20 year breakeven was unchanged 2.15%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over Treasury yields fell by 5bps to 155bps and the Bank of America Merrill Lynch US Corporate Index credit spread fell by 2bps to 115bps. The US high yield bond spread over US Treasury yields fell by 9bps to 340bps over the week. The spread of USD denominated EM debt over US Treasury yields fell by 6bps to 322bps.
  • The S&P GSCI rose by 1.2% in USD terms over the week. The energy sector rose by 2.6% with the price of WTI crude oil increasing by 1.4% to US$71/BBL. Crude oil prices continued on an upward trend, supported by possible US sanctions on Iran after the US withdrew from the Iran nuclear agreement. Industrial metals fell by 0.4% despite copper prices increasing by 1.3% to US$6,869/MT. Agricultural prices fell by 3.3% whilst gold prices rose by 1.1% to US$1,324/ounce.
  • The US dollar depreciated against major currencies over the week, with the exception the yen. The US dollar weakened by 0.3% against sterling, ending the week at $1.36/£. The US dollar depreciated by 0.1% against the euro, finishing the week at $1.19/€. The Japanese yen depreciated by 0.2% against the US dollar to close the week at ¥109.38/$.
Economic Releases
  • In the US, although the headline rate of consumer price inflation rose as expected to 2.5% from 2.4%, core inflation (which excludes both food and energy prices) was unchanged at 2.1%; missing forecasts of a small rise to 2.2%. Higher costs for gasoline and rental accommodation were offset by slowing health-care prices. Nonetheless, rising inflation is eating further into wages with average weekly earnings growth, adjusted for inflation, slowing to 0.4% in April from 0.9%. Consumer confidence remained robust with the provisional reading of the University of Michigan's consumer sentiment index remaining at 98.8 – analysts had expected a 0.5 point decrease in the index. Meanwhile, the National Federation of Independent Business's (NFIB) Small Business Optimism Index exceeded expectations of a slight fall to 104.5 and inched 0.1 point higher to 104.8. 
  • In the Eurozone, there was little in the way of economic data releases over the week. The Markit Eurozone Retail Purchasing Managers' Index (PMI) slipped into contractionary territory, falling to 48.6 from 50.1. Industrial production data for Germany was more encouraging, rebounding by 1.0% in March from the previous month's downwardly revised 1.7% decline, and also ahead of the forecasted 0.8% growth. In annual terms, industrial production increased by 3.2% over the year to March, from the prior month's downwardly revised reading of 2.2%. Data on factory orders in Germany disappointed for March, with orders declining 0.9% over the month, missing economic forecasts of a 0.5% increase. Furthermore, February's reading was also downwardly revised to -0.2% from an initial 0.3%. Against a backdrop of heightened trade tensions, Germany's trade surplus exceeded expectations of €22.5bn and increased to €25.2bn from a revised €18.5bn.
  • Japan’s current account surplus widened to ¥3122.3bn in the year to March, beating analyst forecasts of ¥2899.0bn as investment income received from foreign subsidiaries and interest from foreign bonds increased. Wage growth data in Japan was more encouraging due to an increase in bonus payments. Labor cash earnings grew by 2.1% for the year to March against a forecasted increase of 1.0%. However, household spending declined by 0.7% in the year to March while the previous reading was revised lower from 0.1% to -0.9%.
  • In China, the consumer price index (CPI) rose by 1.8% over the year to April, down from 2.1% in March. The slowdown in inflation was predominantly due to a fall in food prices. Exports and imports improved over the year to April, growing by 12.9% and 21.5% respectively, far higher than the consensus estimates of 8.0% and 16.0%. The strong performance of Chinese exports over April helped to swing the trade balance back into surplus with a reading of US$28.78bn, higher than analyst estimates of US$27.75bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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