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Aon Hewitt Retirement and Investment Blog

Weekly Update - 20 November 2017

NEW INTELLECTUAL CAPITAL

  • U.S. Discount Rate Update. Average discount rates decreased by seven basis points in October, as Treasury rates remained mostly unmoved while spreads tightened noticeably in the long end. In early November, rates have increased by two basis points through Tuesday, November 14th. The average plan sponsor’s discount rate has now decreased by 43 basis points in 2017.
Market Moves -  Week Ending November 17, 2017
Equities
  • Global equity markets edged lower again last week as the ongoing rally in the commodities and oil prices stalled. In the US, investors continued to focus on tax reform as both the House of Representatives and Senate advanced their versions of the bill. The MSCI World Index fell by 0.3% over the week, underperforming S&P 500 which fell by 0.1% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (18.7% vs. 17.3%).
  • US Large Cap stocks underperformed Small Cap stocks as the S&P 500 fell by 0.1% whilst Russell 2000 rose 1.2% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (17.3% vs. 11.2%). Growth stocks outperformed Value stocks last week (0.0% vs.  -0.1%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (24.7% vs. 10.5%).
Bonds
  • The 10 year US Treasury yields fell by 5bps and the 30 year US Treasury yields fell by 10bps ending the week at 2.34% and 2.78% respectively.
  • 20 year TIPS yield fell by 4bps to 0.63% over the week. 20 year Breakeven fell by 2bps to 1.76%.
  • The Barclays Capital Long Credit Index spread over treasury yields rose by 1bp to 150bps whilst the Merrill Lynch US Corporate Index spread was unchanged at 106bps.
  • The US high yield bond spread over US treasury yields was unchanged at 376bps, after having increased over the last few weeks. The spread of USD denominated EM debt over US treasury yields finished the week 3bps lower at 295bps.
Commodities      
  • The S&P GSCI fell by 0.9% in USD terms over the week due to slightly disappointing Chinese industrial production data. The energy sector fell by 1.1% as the price of WTI crude oil decreased by 0.3% to $57/BBL. Industrial metals fell by 0.7% as copper prices decreased by 0.2% to $6,744/MT. Agricultural prices fell by 0.3% whilst gold prices rose by 0.9% to $1,288/ounce.  
Currencies 
  • The US dollar depreciated against the euro and the yen, while it marginally rose against sterling. The US dollar appreciated by 0.1% against sterling, ending the week at $1.32/£. US dollar weakened by 1.0% against the euro, finishing the week at $1.18/€. The Japanese yen rose by 0.9% against the US dollar, ending the week at ¥112.24/$.
Economic Releases
  • In the US, the Consumer Price Index (CPI) rose as expected over October; up by 0.1% but lower than the 0.5% increase recorded previously, as inflationary pressure remained muted. October industrial production data was above expectations at 0.9% month-on-month, versus 0.5% forecasted, and up 2.9% annually; the highest since January 2015. October housing starts were above expectations as they increased by 13.7% over the month, versus 5.6% expected. They increased in all major regions with the exception of the West. MBA mortgage applications for the week also rebounded to increase by 3.1%. The November Philadelphia Fed index was slightly below expectations but still robust at 22.7, against analyst forecasts of 24.6.
  • In Germany, Q3 GDP beat expectations by growing at 0.8% over the quarter, versus 0.6% expected. On an annual basis, the economy grew 2.8%, ahead of the 2.3% forecasted, the highest in six years, largely due to positive contributions from net exports and capital investment. Encouragingly, the November ZEW survey on expectations for the Eurozone economy was higher than last month’s reading of 26.7 at 30.9. In Germany, the November ZEW survey on current situations reflected continuing positive sentiment. Finally, industrial production figures for the Eurozone in September decreased by 0.6% as expected, down from 1.4% growth in September.
  • The Japanese economy grew at an annualised rate of 1.4% in Q3; the seventh consecutive quarter of economic growth, but marginally short of estimates of 1.5%. In particular, the private consumption component of GDP shrank by 0.5% over the quarter whilst the business spending component grew 0.2% over the same period.The pace of Chinese growth in the industrial sector slowed as industrial production increased by 6.2% in the year to October, down from the previous reading of 6.6% and marginally missing estimates of 6.3%. Retail sales grew by 10.0% in the year to October, down from 10.3% in September, and short of the expected 10.5%. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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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