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Aon Retirement and Investment Blog

Weekly Update - 19 November 2018


  • U.S. Discount Rate Update. Average discount rates increased during October, as Treasury rates moved higher across the curve. In early November, rates have decreased by 5 basis points through Monday, November 12th.

MARKET MOVES (Week ending November 18, 2018)

  • Global equity markets fell over the week. The S&P 500 index fell by 1.5%, marginally underperforming the MSCI World index which fell by 1.4%. The heavily-weighted Information Technology and Consumer Discretionary sectors were the worst performers over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (4.1% vs. -1.2%). 
  • Tensions between the US and China resurfaced at the Asia-Pacific Economic Cooperation (APEC) meeting last week as world leaders including Chinese President Xi Jinping and US Vice-President Mike Pence failed to reach an agreement amidst differences over trade and security issues. Brexit uncertainty in the UK increased after several government ministers resigned over the draft withdrawal agreement struck with the European Union, sparking speculations that the deal will be rejected by parliament.
  • US Large Cap stocks marginally underperformed Small Cap stocks over the week as the S&P 500 index fell by 1.5% and the Russell 2000 index fell by 1.4%. On a year-to-date basis, the S&P 500 index has outperformed the Russell 2000 index (4.1% vs.0.5%). Growth stocks fell by 2.3% and Value stocks fell by 0.8% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (6.4% vs. 1.2%). 
  • Bond yields fell across major developed markets as investors moved towards safe-haven assets. The 10-year US treasury yield fell by 11bps to 3.07% and the 30-year US treasury yields fell by 6bps to 3.33% over the week. The 20-year TIPS yield fell by 7bps to 1.17% and the 20-year breakeven fell by 2bps to 2.06%.    
  • The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 14bps to 176bps and the Bank of America Merrill Lynch US Corporate Index rose by 11bps to 134bps. The US high yield bond spread over US treasury yields rose by 47bps to 418bps and the spread of USD denominated EM debt over US treasury yields rose by 21bps to 382bps over the week.
  • The S&P GSCI fell by 2.1% in USD terms over the week. The energy sector fell by 3.8% as the price of WTI Crude oil fell by 6.2% to US$56/BBL amidst increasing US shale oil inventories. Industrial metals rose by 1.1% as copper prices rose by 1.5% to US$6,181/MT. Agricultural prices fell by 0.5% whilst gold prices rose by 0.9% to US$1,222/Oz.  
  • The US dollar depreciated against major currencies (except sterling) over the week. The US dollar appreciated by 1.5% against sterling, ending the week at $1.28/£. The US dollar depreciated by 0.4% against the euro, finishing the week at $1.14/€. The US dollar depreciated by 0.8% against the Japanese yen, ending the week at ¥112.84/$. The US dollar depreciated by 0.4% against the Canadian dollar, ending the week at C$1.31/$.  
Economic Releases
  • Consumer price inflation rose at its fastest pace in nine months in October with the Consumer Price Index (CPI) meeting expectations of a 0.3% increase following September's 0.1% rise. On an annual basis, inflation accelerated to 2.5% from 2.3% while core inflation, which excludes volatile food and energy components, missed analyst forecasts and fell back to 2.1%. Although September's reading of real average weekly earnings was revised down to 0.8%, October's release saw a pick-up in real wage growth as earnings increased by 0.9% over the year. The advance reading of US retail sales reflected a rebound in October as sales increased 0.8% after September's 0.1% decline; also surpassing consensus estimates of 0.5% growth. On a less positive note, industrial production edged just 0.1% higher in October – narrowly falling short of the expected 0.2% increase. 
  • In Europe, the ZEW Indicator for Economic Sentiment fell to -22.0, the lowest level since July 2012 and 2.6 points below October's reading. The German Indicator of Economic Sentiment fared better, rising by 0.6 points to -24.1, but remains in highly negative territory. Poor figures for industrial production, retail sales and foreign trade in the third quarter weighed on the ZEW Indicator for Current Situation which fell to 58.2. Elsewhere, Euro Area industrial production increased 0.9% in the year to September, a decline from the 1.1% growth in the year to August but above market expectations of a 0.3% increase.
  • Japanese economic growth declined in Q3 2018 impacted by a series of natural disasters. Preliminary readings showed that the economy contracted at an annualised 1.2%, worse than the forecasted decline of 1.0%. Japan posted a trade deficit of ¥449.3bn in October, significantly higher than analyst forecasts of a ¥70.0bn deficit and down from September’s ¥131.3bn surplus. This was due to a faster pace of import growth compared to exports. Export growth rebounded by 8.2% for the year to October, slightly below expectations of 8.9% growth. Imports rose by 19.9% over the same period, far ahead than 7.0% increase seen in September and more than the estimated 14.1% increase 
  • In China, industrial production growth increased to 5.9% for the year to October; beating the previous month’s reading and consensus estimates of 5.8%. Fixed asset investment grew by 5.7% for the year to October, beating economist forecast of 5.5% growth. In addition, retail sales growth decelerated to 8.6% over the year to October, less than analyst forecasts of 9.2% growth.

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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