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Aon Retirement and Investment Blog

Weekly Update - 09 October 2017

MARKET MOVES - Week Ending October 06, 2017

  • Global equity markets made gains for a fourth consecutive week last week, supported by solid manufacturing data across major economies. The MSCI World Index rose by 0.7% over the week, underperforming S&P 500 which rose 1.3% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (17.4% vs. 15.7%).
  • US Large Cap stocks performed at par with Small Cap stocks as both the S&P 500 and Russell 2000 rose by 1.3% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (15.7% vs. 12.4%). Growth stocks marginally outperformed Value stocks last week (1.3% vs. 1.2%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (21.4% vs. 10.5%).
  • 10 year US Treasury yields and the 30 year US Treasury yields rose by 3bps each to 2.36% and 2.89% respectively over the week as solid wage growth data increased expectations for another interest rate hike this year.
  • 20 year TIPS yield rose by 1bp to 0.64% over the week. 20 year Breakeven rose by 1bp to 1.77%.
  • Both the Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index fell by 2bps to 147bps and 104bps respectively over the week. The US high yield bond spread over US treasury yields fell by 2bps to 352bps. The spread of USD denominated EM debt over US treasury yields finished the week 3bps lower at 284bps.
  • The S&P GSCI fell by 1.9% in USD terms over the week. The energy sector fell by 3.6% as the price of WTI crude oil decreased by 4.5% to $49/BBL. Industrial metals rose by 2.4% as copper prices increased by 2.9% to $6,617/MT. Agricultural prices fell by 0.5% and gold prices fell by 0.9% to $1,272/ounce. 
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 2.7% against sterling, ending the week at $1.31/£. US dollar strengthened by 0.8% against the euro, finishing the week at $1.17/€. The Japanese yen fell by 0.2% against the US dollar, ending the week at ¥112.81/$.
Economic Releases
  • The impact from Hurricane Harvey and Irma distorted the September US jobs report. The US labor market saw the first monthly drop in employment with a decline of 33,000 jobs (mostly in the leisure and retail sectors) in September against expectations of an 80,000 gain. Despite the decline in employment and the increase in the labour force participation rate (up to 63.1% from 62.9%), the unemployment rate unexpectedly fell to 4.2% from 4.4% which was below forecasts of an unchanged unemployment rate. Wage growth also accelerated with average hourly earnings in the year to September up 2.9% from 2.7% recorded in August and ahead of estimates of a 2.6% increase. Aside from the relatively positive jobs report, the US economy looks to have accelerated in September as the Institute of Supply Management's manufacturing index rose to a thirteen-year high of 60.8 from 58.8. Analysts had expected a slight slowdown, predicting a 0.7 point decrease in the index.
  • In the Eurozone, the final Markit manufacturing PMI reading for September was down 1 point to 58.1, with the final composite index remaining unchanged at 56.7. Retail sales data for the Eurozone was weaker than expected, falling 0.5% over August, down from a 0.3% decrease in July and expected growth of 0.3%. In the year to August, sales grew at a disappointing 1.2%, down from 2.3% in July and 2.6% as forecasted by analysts. The unemployment rate in the area remained at 9.1% in August, below consensus estimates of a slight decrease to 9.0%. Encouragingly, factory orders in Germany grew 3.6% over the month of August, rebounding from the previous 0.4% decrease and far exceeding expectations of 0.7%. The Producer Price Index for Europe also beat market expectations at 2.3% for the year to August, with prices increasing by 2.5% from 2.0% recorded in July.
  • Japanese economic data was generally positive. The Bank of Japan’s Q3 2017 Tankan survey revealed an optimistic outlook for the Japanese manufacturing sector. The Tankan large manufacturer’s index rose to 22 from the previous reading of 17. Wage growth data was encouraging as labour cash earnings rose by 0.9% in the year to August, due to bonus payments, against a forecasted increase of 0.5%. Real wages, which take inflation into consideration, rose by 0.1% over the same period after decreasing by 1.1% previously.
  •  The official Chinese manufacturing PMI came in higher at 52.4 from 51.7 and above forecasts of a slight decrease to 51.6. Conversely, the Caixin manufacturing PMI, which focuses more on small and mid-sized businesses, moved to 51.0 from 51.6 and below expectations of 51.5. The services sector accelerated strongly with the non-manufacturing index increasing by 2 points to 55.4.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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