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Aon Retirement and Investment Blog

Weekly Update - 23 October 2017


MARKET MOVES - Week Ending October 20, 2017
  • Global equity markets continued to make gains over the week The MSCI World Index rose by 0.4% over the week, underperforming S&P 500 which rose by 0.9% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (18.7% vs. 16.9%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose by 0.9% whilst Russell 2000 rose 0.5% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (16.9% vs. 12.4%). Value stocks outperformed Growth stocks last week (1.1% vs. 0.6%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (22.6% vs. 11.7%).
  • 10 year US Treasury yields rose by 11bps to 2.38% and 30 year US Treasury yields rose by  9bps to 2.90% as  the US Federal Reserve’s Beige book and tax reform developments indicated continued economic growth.
  • 20 year TIPS yield rose by 10bps to 0.68% over the week. 20 year Breakeven rose by 1bp to 1.76%.
  • Both the Barclays Capital Long Credit Index spread over treasury yields and Merrill Lynch US Corporate Index fell by 3bps each ending the week a 145bps and 101bps respectively.
  • The US high yield bond spread over US treasury yields fell by 18bps to 342bps. The spread of USD denominated EM debt over US treasury yields finished the week 7bps lower at 280bps.
  • The S&P GSCI fell by 0.1% in USD terms over the week. The energy sector rose by 0.6% as the price of WTI  crude oil increased by 0.4% to $52/BBL. Industrial metals fell by 0.2% although copper prices increased by 0.9% to $6,922/MT. Agricultural prices fell by 2.3% and gold prices fell by 1.3% to $1,282/ounce. 
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 0.9% against sterling, ending the week at $1.32/£. US dollar strengthened by 0.4% against the euro, finishing the week at $1.18/€. The Japanese yen fell by 1.3% against the US dollar, ending the week at ¥113.43/$.
Economic Releases
  • The US industrial sector met expectations and staged a partial recovery over September with production increasing by 0.3% following August's upwardly revised 0.7% decline. There were also positives coming from the manufacturing sector as both the Empire Manufacturing Index and the Philadelphia Federal Reserve Business Outlook index surpassed analyst forecasts and rose in October to 30.2 (from 24.4) and 27.9 (from 23.8) respectively. The effects of the hurricane season were still visible in September's housing market data; the number of housing starts over September fell by 4.7%, well below consensus estimates of a milder 0.4% decline and August's 0.2% fall. Finally, initial jobless claims fell back to a multi-decade low of 222k, from 244k and below analysts’ predicted level of 240k.
  • Germany’s ZEW October survey of the current economic climate came in slightly lower than expected at 87.0; versus a predicted reading of 88.5. The equivalent ZEW survey for measuring expectations came in at 17.6 against expectations of a 3 point increase to 20.0. The October Eurozone ZEW survey for expectations weakened again from 31.7 in September to 26.7. The Eurozone’s trade balance surplus shrank in August, as the stronger euro supported healthy demand for imports, though this was partly offset by a rise in exports.
  • In Japan, final industrial production growth for August was revised down to 2.0% from 2.1%. The trade surplus rose to ¥670.2bn in September from a revised surplus of ¥112.6bn in the previous month, beating expectations of ¥556.8bn. Both export and import growth slowed as exports rose by 14.1% over the year to September while imports rose by 12.0%. Both missed analyst forecasts of 15.0% and 14.7% growth, respectively.
  • In a week when China's 19th Party Congress opened, economic releases provided no surprises. Year-on-year GDP growth matched forecasts, slowing slightly to 6.8% from 6.9% while the Governor of the People's Bank of China stated the economy is likely to grow by 7.0% in the second half of 2017 largely due to surging household spending. Annual consumer price inflation also slowed in September with prices rising by 1.6% over the year; down from 1.9%. The pace of growth in the industrial sector quickened as industrial production increased by 6.6% in the year to September, up from 6.0%. Retail sales growth edged slightly higher from 10.1% to 10.3% over the year.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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