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Aon Retirement and Investment Blog

Weekly Update - 26 November 2018


  • Aon Press Release. The Townsend Group raises $767 million for Townsend Real Estate Alpha global value-add real estate strategy.

MARKET MOVES (Week ending November 25, 2018)

  • Global equity markets fell over the week with losses on major equity indices wiping out their previous year-to-date gains. The S&P 500 index fell by 3.8%, underperforming the MSCI World index which fell by 2.8%. The heavily-weighted Information Technology (IT) sector was the worst performer, losing 6.1% over the week, with the FAANG (Facebook, Amazon, Apple, Netflix, Google’s parent Alphabet) stocks experiencing significant losses. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (0.2% vs. -4.0%).
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index fell by 3.8% and the Russell 2000 index fell by 2.5%. On a year-to-date basis, the S&P 500 Index has outperformed the Russell 2000 Index (0.2% vs.-2.0%). Growth stocks fell by 4.7% and Value stocks fell by 2.8% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (1.5% vs -1.6%). 
  • Bond yields fell across major developed markets. The 10-year US treasury yield fell by 3bps to 3.04% and the 30-year US treasury yields fell by 2bps to 3.30% over the week. The 20-year TIPS yield rose by 1bp to 1.18% and the 20-year breakeven fell by 3bps to 2.03%.
  •  The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 3bps to 179bps and the Bank of America Merrill Lynch US Corporate Index rose by 4bps to 138bps. The US high yield bond spread over US treasury yields rose by 11bps to 429bps and the spread of USD denominated EM debt over US treasury yields rose by 17bps to 398bps over the week. 
  • The S&P GSCI fell by 6.6% in USD terms over the week. The energy sector fell by 10.2% as the price of WTI Crude oil fell by 10.7% to US$50/BBL. Crude oil prices reached a one year low and erased their previous year-to-date gains as they slid further into bear market territory on concerns over excess supply. Industrial metals fell by 0.4% despite copper prices rising by 0.5% to US$6,210/MT. Agricultural prices fell by 1.8% whilst gold prices rose by 0.1% to US$1,224/Oz.  
  • The US dollar appreciated against major currencies (except the Japanese yen) over the week. The US dollar appreciated by 0.3% against sterling, ending the week at $1.28/£. The US dollar appreciated by 0.4% against the euro, finishing the week at $1.13/€. The US dollar depreciated by 0.1% against the Japanese yen, ending the week at ¥112.78/$. The US dollar appreciated by 0.7% against the Canadian dollar, ending the week at C$1.32/$.  
Economic Releases
  • In the US, economic releases were largely negative last week. Orders for durable goods fell more sharply than expected, dropping by 4.4% in October (the largest fall in the last fifteen months) against analyst forecasts of a 2.6% decline. This negative news was compounded by a downward revision of September's release from a 0.7% increase to a 0.1% dip. Following two consecutive months of declines, orders for non-defense capital goods (excluding aircraft), which is viewed as a proxy for business investment, was flat in October but missed consensus estimates of a 0.2% uptick. Provisional releases for Purchasing Managers' Index (PMI) data also were also disappointing with the manufacturing and services PMI falling to 55.4 and 54.4, respectively. Analysts had expected the manufacturing PMI to remain at 55.7 and growth in the services sector to accelerate to 55 from 54.8. 
  • Euro Area Markit Manufacturing PMI continued to disappoint with the November reading falling to 51.5 against market expectations that it would remain unchanged at 52.0. Export orders dropped the most since the survey began, job creation eased to a 22-month low but inflation remained high. Euro Area Markit Services PMI fared little better, falling to 53.1 from 53.7 and below expectations of 53.6, with similar underlying drivers. German PMIs also disappointed with both Manufacturing and Services PMI falling by 0.6 points and 1.2 points to 51.6 and 52.2, respectively. Elsewhere, Euro Area consumer confidence declined to -3.9 in November from -2.7 in October.
  • In Japan, growth in the manufacturing sector hit a two-year low in November with the preliminary Nikkei PMI manufacturing index falling to 51.8 from October’s reading of 52.9. Headline consumer price inflation edged up to 1.4% from 1.2% for the year to October. However, Japan’s core consumer price index, which excludes more volatile food but not energy prices, was unchanged from September’s 1.0% reading. Both inflation readings met consensus estimates but remained below the central bank’s 2.0% target. The final reading for machine tool orders growth (year-on-year basis) was revised slightly higher to -0.7% from -1.1%. Meanwhile, the All Industry Activity Index moved 0.9% lower in September, meeting expectations but lower than the downwardly revised 0.4% increase in August. 
  • There were no Chinese economic releases this week. Attention will be focused on the upcoming G20 summit in Buenos Aires towards the end of this week on which direction of trade talks may go between the US and China.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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