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Aon Retirement and Investment Blog

Weekly Update - 13 November 2017 (UK/Europe)


  • Webinar: Retirement Planning for 2018 & Beyond. Our U.S. Retirement experts will share ideas for what plan sponsors should have on their radar to finish strong across U.S. funding, accounting, and compliance requirements in 2017 and how to position effectively for 2018 and beyond! If you are interested in attending this webinar on November 14th, register now. If you cannot attend live, registering will ensure you receive access to the webinar replay you can view at your convenience.
  • Global equity markets fell over last week, after gaining for eight consecutive weeks previously. News of Senate Republicans releasing a draft of the tax reform bill, which may delay the corporate tax cut until 2019, unnerved the markets. The MSCI AC World Index fell 0.4% in local currency terms and 1.3% in sterling terms. Developed Pacific ex Japan was the best performing region both in local currency terms (1.3%) and sterling terms (0.4%) driven by Australian and Hong Kong equities. Developed Europe ex UK was the worst performing region both in local currency terms (-2.2%) and sterling terms (-2.9%).
  • UK gilt yields rose across all maturities as was the trend in government bonds of major developed markets. The 10 year UK gilt yield rose by 6bps to 1.37% and the 20 year UK gilt yield rose by 4bps to 1.90%. The 10 year US treasury yield rose by 7bps to 2.41% amid renewed uncertainty over the much awaited US tax reform bill. European government bond yields rose over the week. German bund yields rose by 5bps to 0.41% and French government bond yields rose by 2bps each to 0.64%.
  • UK real yields fell over the week. The 20 year real yield fell by 2bps to -1.59% and the Over 5 year real yield fell by 3bps to -1.59%. 20 year breakeven inflation rose by 7bps to 3.41%.
  • The US high yield bond spread over US treasury yields rose by 24bps to 376bps. The spread of USD denominated EM debt over US treasury yields finished the week 7bps higher at 298bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) rose by 1bp to 103bps.
  • The S&P GSCI rose by 1.2% in USD terms over the week. The energy sector rose by 2.6% as the price of Brent crude oil increased by 4.7% to $64/BBL (the highest level in two years) due to a political crackdown in Saudi Arabia and the country’s increasing tensions with Iran. Industrial metals fell by 2.1% as copper prices decreased by 1.6% to $6,754/MT. Agricultural prices rose by 0.8% and gold prices rose by 0.7% to $1,276/ounce.
  • Sterling appreciated against major currencies over the week as Brexit talks progressed further. The US dollar depreciated by 1.2% against sterling, ending the week at $1.32/£. The euro weakened by 0.8% against sterling, finishing the week at €1.13/£. The Japanese yen appreciated by 0.9% against the US dollar, ending the week at ¥113.29/$.
  • The US was light in terms of economic data releases over the week. Weekly initial jobless claims came in at 239k, broadly in line with the 232k expected, as the labour market continued to stabilise following hurricane-fuelled disruption experienced in September. The University of Michigan consumer confidence reading for November disappointed at 97.8 versus a forecasted 100.8, as falls were recorded across the current and expected economic conditions sub-components. Weekly MBA mortgage applications were flat, rebounding from the previous week’s 2.6% decline. The final September wholesale trade index was unrevised at 0.3% growth month-on-month. Wholesale sales rose 1.3% month-on-month in September, leaving the inventory-shipments ratio at 1.27, its lowest level since December 2014.
  • In the UK, there was encouraging production data as September industrial production increased for the 6th consecutive month, up 0.7% and ahead of expectations of a 0.3% increase. Consequently, annual growth was also up 2.5%, ahead of the 1.9% forecasted. Similarly positive, manufacturing production rose 0.7% month-on-month versus 0.3% expected, and 2.7% over the year versus 2.4% expected. The UK trade deficit narrowed over September, driven by an increase in exports. The trade gap contracted by £700m, to £2.8bn, unexpectedly beating analyst forecasts of a £4.3bn deficit. The Halifax house price index was broadly in line at 0.3% over the month of October, moderating slightly from the previous month’s 0.8% increase. The RICS housing survey weakened in October, with only a net 1% of surveyors reporting rising prices and a net 11% expecting price falls over the next three months.
  • In the Eurozone, economic data was positive over the week. Final readings of the October Purchasing Managers' Index (PMI) were revised marginally higher, with the services PMI now at 55.0 and composite PMI at 56.0. Retail sales data for September rebounded, growing 0.7% month-on-month, from the 0.1% decline previously. Annual sales grew 3.7%, ahead of 2.8% expected and increasing from 2.3% previously. The November Sentix investor confidence also beat forecasts at 34, versus 31 expected, now slightly lower than the pre-crisis high. Encouragingly, Germany’s September factory orders were above expectations, growing 1.0% month-on-month against an expected 1.1% decline, and up 9.5% over the year, versus 7.1% expected. Germany’s September trade surplus was also notably above expectations at €24.1bn as both exports, 7.7%, and imports, 7.5%, grew over the year.
  • Japanese economic data was mixed over the week. Core machine orders fell by 8.1% in September after last month's 3.4% increase. The Tertiary Industry Index also slipped by more than expected, falling 0.2% in September. Wage growth data continued to be encouraging as labour cash earnings rose by 0.9% in the year to September, against a forecasted increase of 0.5%. Real wages, which take inflation into consideration, fell by 0.1% over the same period but beat analysts’ forecasts for a 0.2% decline.
  • Chinese inflation data exceeded expectations, with the Chinese consumer price index rising by 1.9% for the year to October, above expectations of 1.8% and the previous month’s rate of 1.6%. Both export and import growth slowed for the year to October and the trade surplus rose to $38.2bn from $28.6bn. Export growth slowed to 6.9% from 8.0% and below forecasts of 7.1%. Import growth decelerated to 17.2%, down from 18.6% but above expectations of 17.0%
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