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Aon Hewitt Retirement and Investment Blog

Weekly Update - 24 November 2017

NEW INTELLECTUAL CAPITAL

Equities 
  • Global equity markets rose over the week with all regions generating positive returns in local currency terms. In the Eurozone, German coalition talks between the Free Democratic Party and Angela Merkel’s Christian Democratic Union party failed, raising the prospects for a new snap election. The MSCI World Index rose by 1.3% over the week, outperforming S&P 500 which rose by 0.9% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (20.3% vs. 18.4%).
  • US Large Cap stocks underperformed Small Cap stocks as the S&P 500 rose by 0.9% whilst Russell 2000 rose 1.8% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (18.4% vs. 13.2%). Growth stocks outperformed Value stocks last week (1.3% vs. 0.5%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (26.4% vs. 11.1%.). 
Bonds
  • The 10 year US Treasury yields was unchanged at 2.34% whilst the 30 year US Treasury yields fell by 1bp to 2.76% in a week in which the US Federal Reserve (Fed) meeting minutes indicated that policy makers remained concerned about low US inflation.
  • The 20 year TIPS yield rose by 1bp 0.64% whilst the 20 year Breakeven fell by 1bp to 1.75%.
  • The Barclays Capital Long Credit Index spread over treasury yields fell by 4bps to 146bps and the Merrill Lynch US Corporate Index spread fell by 2bps to 104bps.
  • The US high yield bond spread over US treasury yields fell by 9bps to 367bps. The spread of USD denominated EM debt over US treasury yields finished the week 3bps lower at 292bps. 
Commodities       
  • The S&P GSCI rose by 1.4% in USD terms over the week. The energy sector rose by 1.8% as the price of WTI crude oil increased by 4.2% to $59/BBL due to increased hopes of an announcement of further production cuts in the upcoming OPEC meeting and shutdown of imports from the TransCanada Keystone pipeline. Industrial metals rose by 2.5% as copper prices increased by 3.5% to $6,980/MT. Agricultural prices were flat whilst gold prices rose by 0.1% to $1,289/ounce.  
Currencies
  • The US dollar depreciated against major currencies over the week. The US dollar depreciated by 1.2% against sterling, ending the week at $1.34/£. US dollar weakened by 1.3% against the euro, finishing the week at $1.19/€. The Japanese yen rose by 0.7% against the US dollar, ending the week at ¥111.50/$.
Economic Releases
  • A number of economic releases in the US disappointed over the course of last week. Momentum in capital goods orders slowed over October following three months of strong gains. Orders fell by 1.2% over the month against expectations of a 0.3% increase and a previous (upwardly revised) reading of 2.2%. Although remaining firmly in expansionary territory, the flash reading of the US manufacturing Purchasing Managers’ Index (PMI) unexpectedly slipped to 53.8 for November from 54.6 against anticipations of a 0.4 point increase. The services PMI similarly missed analyst forecasts and fell to 54.7 from 55.3. However, there was more positive news as the Conference Board’s Leading Economic Index outperformed expectations of a 0.8% increase and moved 1.2% higher in October. This followed an upwardly revised 0.1% reading in September.
  • Data releases in the Eurozone were positive over the week. In Germany, the headline IFO business climate reading trended higher, reaching 117.5 in November against expectations of the index remaining at 116.7. The IFO expectations index was also well above analyst forecasts at 111 against 108.8 expected; the highest level since November 2010. November Eurozone PMIs were strong and generally ahead of consensus. The composite PMI rose to a six and a half year high of 57.5, from 56.0 previously, when it was expected to remain at 56.0. The strength was driven by the manufacturing sector with the manufacturing PMI rising 1.5 points to 60.0, against 58.2 expected. Meanwhile, the services PMI also outperformed, up to 56.2 from 55.0 and 55.2 forecasted. A similar trend was observed in Germany with the composite PMI advancing to 57.6 from 56.6. Consumer confidence in the Eurozone also held strong in November, advancing to a new sixteen-year high of 0.1 from -1.1 and above estimates of -0.8.
  • The Japanese trade balance for the month of October remained positive, boosted by an increase in exports to China, but fell to a surplus of ¥285.4bn from a revised trade surplus of ¥670.2bn in the previous month. Both export and import growth for the year to October missed analyst forecasts as exports rose by only 14.0% compared to consensus estimates of 15.7% while imports rose by 18.9% against forecasts of 20.2%. Growth in the Japanese manufacturing sector picked up with the preliminary Nikkei manufacturing PMI rising from 52.8 to 53.8 in November. The All Industry Activity index dipped by 0.5% in September, lower than the previous growth rate of 0.2% and expectations of a 0.4% decline.
  • There were no major economic data releases from China last week.  
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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