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Aon Retirement and Investment Blog

Weekly Update - 12 November 2018

MARKET MOVES (Week ending November 11, 2018)

  • Global equity markets rose over the week. The S&P 500 index rose by 2.2%, outperforming the MSCI World index which rose by 1.4%. The US midterm elections threw up largely expected results with the Democrats taking control of the House of Representatives and the Republicans retaining a majority in the Senate. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (5.7% vs. 0.2%). 
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 2.2% and the Russell 2000 index inched up by 0.1%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (5.7% vs.1.9%). Growth stocks rose by 1.7% and Value stocks rose by 2.4% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (8.9% vs. 2.0%).
  • The 10-year US treasury yield fell by 3bps to 3.19% and the 30-year US treasury yields fell by 7bps to 3.39% over the week. The Federal Reserve kept its interest rate unchanged at 2.00-2.25% in its meeting last week, whilst the headline producer price index for October shows the fastest monthly increase since 2012. The 20-year TIPS yield fell by 3bps to 1.24% and the 20-year breakeven fell by 2bps to 2.08%.   
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 2bps to 162bps and the Bank of America Merrill Lynch US Corporate Index fell by 1bp to 123bps. The US high yield bond spread over US treasury yields fell by 1bp to 371bps and the spread of USD denominated EM debt over US treasury yields rose by 6bps to 361bps over the week.
  • The S&P GSCI fell by 2.5% in USD terms over the week. The energy sector fell by 2.8% as the price of WTI Crude oil fell by 4.7% to US$60/BBL. Oil prices fell over a week in which the US granted 6-month temporary waivers to eight countries, including China and India, allowing them to continue importing Iranian oil without US sanctions. Industrial metals fell by 2.2% as copper prices declined by 2.7% to US$6,088/MT. Agricultural prices fell by 1.5% whilst gold prices fell by 1.7% to US$1,211/Oz.  
  • The US dollar’s movements against major currencies were mixed over the week. The US dollar depreciated by 0.5% against sterling, ending the week at $1.30/£. The US dollar appreciated by 0.2% against the euro, finishing the week at $1.14/€. The US dollar appreciated by 0.5% against the Japanese yen, ending the week at ¥113.72/$. The US dollar appreciated by 0.6% against the Canadian dollar, ending the week at C$1.32/$.  
Economic Releases
  • While the focus attention may have been firmly placed on the results of the US Midterm elections, there were some better-than-expected economic releases. The Institute of Supply Management's (ISM) non-manufacturing index moved slightly lower to 60.3 from September's record level of 61.6, but exceeded consensus estimates of a larger decline to 59. Although falling from September's reading of 98.6, the US consumer also appears to remain optimistic with the provisional reading of the University of Michigan's Consumer Sentiment index inching 0.3 points lower to 98.3; but above expectations of a fall to 98. Elsewhere, the US Federal Reserve held interest rates unchanged with market expectations firming of a rate hike at their December meeting.
  • Euro Area retail sales growth stalled in September following an upwardly revised 0.3% in August. YoY retail sales growth fell to 0.8% from 1.8%, the lowest level since October 2017. German industrial production growth came in above expectations at 0.2% from an upwardly revised 0.1% in August, due to a jump in construction output. German factory orders also beat expectations but still slowed sharply to 0.3% from 2.5% in August. Elsewhere, the final readings for the October Markit Euro Area and German PMIs were revised up slightly to 53.1 (+0.4) and 53.4 (+0.7) respectively but remained below September levels.
  • In Japan, core machine orders fared worse than analyst expectations of a 9.0%decline, falling by 18.3% in September, as an earthquake and typhoons affected business activity. On a more positive note, the Japan Nikki Services PMI increased by 2.2 points to 52.4 while the Composite PMI reached 52.5 from 50.7. Meanwhile, year-on-year labour cash earnings accelerated to 1.1% from a downwardly revised 0.8% in September. The current account surplus narrowed to ¥1,821.6bn in September but was above forecasts
  • In China, exports rose by 15.6% in the year to October, ahead of the 14.4% growth recorded previously and 11.7% forecasted. Over the same period, imports increased by 21.4%, well ahead of the expected 14.5% increase. Overall, China's trade surplus widened to US$34.01bn, slightly below analyst estimates of a US$35.15bn surplus. Despite escalating trade tensions with the US, it appears that Chinese exports to the US continued to increase as importers front-loaded orders to avoid additional tariffs. China’s Consumer Price Index rose in line with analysts’ forecasts to 2.5% over the year to October.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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