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Aon Retirement and Investment Blog

Weekly Update - 29 May 2018


MARKET MOVES (Week ending May 27, 2018)

  • Global equity markets edged lower over the week amid heightened geopolitical tensions and continuing trade uncertainties. Prominent amongst these tensions, US President Donald Trump called off the Singapore summit with his North Korean counterpart Kim Jong-un. The MSCI World Index fell 0.4%, underperforming the S&P 500 Index which rose by 0.3% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (2.6% vs.1.6%).
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 Index rose by 0.3% whilst the Russell 2000 Index remained flat. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (6.4% vs. 2.6%). Growth stocks outperformed Value stocks over the week as Growth stocks rose by 0.6% whilst Value stocks remained flat, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (7.4% vs. -2.1%).
  • The 10-year US treasury yield fell by 13bps to 2.93% as the US Federal Reserve reiterated its plans for a gradual rate hike path. The 30 year US treasury yield fell by 12bps to 3.09%.
  • The 20 year TIPS yield fell by 7bps to 0.92% and the 20 year breakeven fell by 6bps to 2.09%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over Treasury yields rose by 1bp to 158bps and the Bank of America Merrill Lynch US Corporate Index credit spread rose by 2bps to 116bps. The US high yield bond spread over US treasury yields rose by 12bps to 353bps over the week. The spread of USD denominated EM debt over US treasury yields fell by 5bps to 323bps.
  • The S&P GSCI fell by 1.4% in USD terms over the week. The energy sector fell by 3.3% as the price of WTI crude oil decreased by 4.8% to US$68/BBL. Crude oil prices fell following reports that OPEC and Russia would increase production to replace lost supply from Iran and Venezuela once the US sanctions are imposed. Industrial metals rose by 0.2% as copper prices increased by 1.5% to US$6,886/MT. Agricultural prices rose by 3.2% and gold prices rose by 1.2% to US$1,304/ounce.
  • With the exception of the yen, the US dollar appreciated against major currencies over the week.  The US dollar strengthened by 1.2% against sterling, ending the week at $1.33/£. The US dollar appreciated by 1.0% against the euro, finishing the week at $1.17/€. The Japanese yen appreciated by 1.3% against the US dollar to close the week at ¥109.28/$.
Economic Releases
  • Purchasing Managers' Index (PMI) data reflected an improvement in US economic activity with both the manufacturing and services sectors improving in May. The manufacturing PMI inched 0.1 points higher to 56.6 while the services PMI surpassed forecasts of a 0.4 point increase to 55.0 and rose to 55.7. Analysts had expected the former to remain at 56.5. There was less positive news with durable goods orders which declined by 1.7% over April; below consensus estimates of a 1.3% fall and March's upwardly revised 2.7% increase. This was largely driven by a sharp fall in demand for transportation equipment, which dropped 6.1% over the month. Excluding goods in the transportation sector, orders for durable goods exceeded expectations of 0.5% growth and increased by 0.9%. 
  • Economic releases in the Eurozone largely came in below expectations over the week. Eurozone PMI data continued to fall during May despite expectations that they would remain steady. The manufacturing PMI fell from 56.2 to 55.1 while the services PMI fell from 54.7 to 53.9 during May. Consumer confidence also unexpectedly fell over May with the consumer confidence index falling to 0.2 from April’s downwardly revised reading of 0.3. Analysts had forecasted a slight improvement in the index to 0.5. German PMI data also disappointed; the largest fall was seen in the manufacturing sector with the sector’s PMI falling from 58.1 to 56.8. This continued the negative trend in German manufacturing over the year. Similarly, the German services PMI disappointed and fell from 54.6 to 53.1.
  • In Japan, the manufacturing sector grew at a slower rate in May with the preliminary Nikkei PMI manufacturing index falling to 52.5 from April’s reading of 53.8. The trade surplus fell to ¥626 billion in April from ¥797 billion in March but came in above expectations of ¥440 billion. Exports grew by 7.8% for the year to April and imports rebounded over the same period, growing by 5.9%. Meanwhile, the All Industry Activity Index missed estimates of 0.1% and was flat over March.
  • In a very light week for Chinese economic releases, industrial profits for the year to April increased by 21.9% from the 3.1% growth reported in the previous month. April's reading marked the fastest growth in six months and eased concerns about a slowing economy.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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