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Aon Retirement and Investment Blog

Weekly Update - 02 October 2017

MARKET MOVES - Week Ending September 29, 2017
  • Global equity markets generated modest returns over the week. Both the S&P 500 Index rose by 0.7% and the MSCI World Index rose by 0.4%. On a year to date basis, the MSCI World Index has outperformed the S&P 500 Index (16.5% vs. 14.2%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 Index rose by 2.8% whilst the S&P 500 index rose by 0.7% over the week. On a year to date basis, the S&P 500 Index has outperformed Russell 2000 Index (14.2% vs. 10.9%). Value stocks and Growth stocks both rose last week, by 0.6% and 0.8% respectively, as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (19.9% vs. 9.2%).
  • Both the 10 year US treasury yields and the 30 year US Treasury yields rose by 8bps, ending the week at 2.33% and 2.86% respectively.
  • The 20 year TIPS yield fell by rose 8bps to 0.64% over the week and the 20 year breakeven inflation rate increased 1bp to 1.76%.
  • The spread on the Barclays Capital Long Credit index over Treasury yields remained fell by 6bps to 149bps,  the Merrill Lynch US Corporate Index also fell by 5bp to 106bps over the week. The US high yield bond spread over US treasury yields fell by 9bps to 346bps. The spread of USD denominated EM debt over US treasury yields finished the week 3bps lower at 246bps.
  • The S&P GSCI rose by 0.3% in USD terms over the week. The energy sector rose by 0.9% as the price of WTI crude oil increased by 1.3% to $58/BBL. Industrial metals fell by 0.2% despite copper prices increasing by 0.3% to $6,432/MT. Agricultural prices fell by 1.0% and gold prices fell by 0.9% to $1,284/ounce.  
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 0.8% against sterling and 1.2% against the euro ending the week at $1.34/£ and $1.18/€ respectively. The Japanese yen depreciated by 0.5% against the US dollar, ending the week at ¥112.57/$.
Economic Releases
  • The final reading of economic growth in the US over the second quarter of 2017 was unexpectedly revised up to 3.1% (quarter-on-quarter, annualized) from 3.0% where analysts had predicted it to remain unchanged. Both the Conference Board's and University of Michigan's measures of consumer confidence fell over September. The former unexpectedly dropped from a revised 120.4 to 119.8, below expectations of a milder decrease to 120.0. The final reading of the University of Michigan's consumer sentiment index slipped to 95.1 from 95.3. Orders for durable goods exceeded consensus estimates of 1.0% and rebounded slightly by 1.7% in August after dropping 6.8% in July. Core Personal Consumption Expenditure (PCE), the Federal Reserve's preferred measure of inflation, slowed to 1.3% in the year to August from 1.4% in the previous month. Core inflation was forecasted to be unchanged at 1.4%.
  • In the Eurozone, measures of economic confidence were positive across the board. The economic sentiment index rose by 1.1 point to a ten-year high of 113, against 112 expected. Both the business climate (1.34 versus 1.12 expected) and industrial confidence components (6.6 versus 5.2 expected) surpassed consensus estimates. Meanwhile, the final reading for consumer confidence was unchanged at -1.2. The Eurozone flash estimate for annual consumer price inflation for September was unchanged at 1.5%, just shy of the forecast of 1.6%. However data for Germany was less encouraging over the week. The IFO business climate index, a widely followed gauge of the current German business climate and of expectations for the next six months, pulled back to 115.2 in September from 115.9 previously and below the expected level of 116. Similarly, retail sales figures for August came in short of expectations, declining 0.4% month-on-month against expectations of a 0.5% increase.
  • Industrial production in Japan rebounded strongly in August, to rise by 2.1%, surpassing forecasts of 1.8% growth. Production fell by 0.8% in the previous month. The jobless rate met expectations and stood firm at 2.8%. The job-to-applicant ratio was also unchanged at 1.52, slightly below consensus estimates of 1.53. Amid a tight job market, annual consumer price inflation ticked higher to 0.7% from 0.4% thereby outperforming expectations of a 0.6% increase in prices. Retail sales fell by more than expected over August. Sales slumped by 1.7%, below forecasts of a 0.5% fall while overall household spending growth for the year to August improved to 0.6% from a 0.2% fall in the year to July.
  • Industrial profits in China increased by the most in four years as profits jumped by 24.0% in the year to August; up from the previous reading of 16.5%. Elsewhere, the final reading of the current account surplus narrowed from $52.9bn to $50.9bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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