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Aon Retirement and Investment Blog

Weekly Update - 30 October 2017


  • Connections: Aon Hewitt Investment Consulting’s Newsletter for institutional investors in the non-profit sector.
MARKET MOVES - Week Ending October 27, 2017
  • Global equity markets edged higher over the week, supported by stronger than expected US corporate earnings (particularly in the technology sector) and Q3 2017 economic growth data. The MSCI World Index was flat over the week, underperforming S&P 500 which rose by 0.2% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (18.6% vs. 17.2%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose by 0.2% whilst Russell 2000 fell 0.1% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (17.2% vs. 12.3%). Growth stocks outperformed Value stocks last week (0.8% vs. -0.4%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (23.6% vs. 11.2%).
  • Both the 10 year US Treasury yields and the 30 year US Treasury yields rose by 2bps each to 2.41% and 2.92% respectively.
  • 20 year TIPS yield fell by 1bp to 0.67% over the week. 20 year Breakeven rose by 3bps to 1.79%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 143bps and Merrill Lynch US Corporate Index fell by 1bp to 100bps over the week.
  • The US high yield bond spread over US treasury yields rose by 2bps to 344bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps higher at 282bps.
  • The S&P GSCI rose by 2.4% in USD terms over the week. The energy sector rose by 3.5% as the price of WTI crude oil sharply increased by 4.4% to $54/BBL. Industrial metals fell by 0.1% as copper prices decreased by 1.7% to $6,801/MT. Agricultural prices rose by 1.1% whilst gold prices fell by 1.0% to $1,270/ounce.
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 0.6% against sterling, ending the week at $1.31/£. US dollar strengthened by 1.7% against the euro, finishing the week at $1.16/€. The Japanese yen fell by 0.4% against the US dollar, ending the week at ¥113.84/$.
Economic Releases
  • Headline GDP growth figures showed few signs of a deceleration in the US economy from the impact of hurricane season. GDP growth (quarter-on-quarter, annualised) outperformed expectations of 2.6% growth with the economy expanding by 3.0% over the third quarter; slightly lower than the previous quarter’s 3.1% growth. Disappointing consumer and construction spending was offset by strong inventory investment as US businesses anticipated higher levels of demand. A marked slowdown in orders for durable goods failed to materialize with orders rising by 2.2% over September, the most since June this year, and ahead of the forecasted 1% rise. Forward-looking indicators for the US economy were also strong as the manufacturing Purchasing Managers' Index (PMI) for October exceeded estimates of 53.4 and rose to 54.5 from 53.1. The services PMI unexpectedly increased by 0.6 points to 55.9, after being forecast to fall slightly to 55.2.
  • In Europe, the ECB announced changes to its quantitative easing programme; monetary stimulus on a monthly basis will be reduced from €60bn to €30bn from January 2018 but would be extended until September 2018. The Eurozone’s manufacturing PMI was above consensus at 58.6 against the 57.8 forecast which marked a 10 year high. However, the services and composite PMIs were lower than expected, coming in at 54.9 (versus 55.6 expected) and 55.9 (versus 56.5 expected) respectively. Similarly in Germany, the manufacturing PMI was above expectations at 60.5 versus 60 forecasted, but both the services (55.2 against 55.5 expected) and composite PMI (56.9 against 57.5 expected) lagged forecasts. Consumer confidence in the Eurozone in October edged slightly higher to -1.0 from -1.2, the highest level since April 2001. In Germany, the October IFO survey data was also encouraging, as the business climate index unexpectedly rose to 116.7 from 115.3.
  • In Japan, consumer price inflation over the year to September met expectations and remained at 0.7%. Core consumer price inflation (which excludes fresh food and energy) was also in line with forecasts rising by 0.2% over the same period. Growth in the Japanese manufacturing sector slightly slowed down with the preliminary Nikkei manufacturing PMI falling to 52.5 in October from 52.9. Nationwide department sales over to September increased by 4.6%, up from 3.6%.
  • It was a quiet week in terms of economic releases in China. Nonetheless, data showed that the industrial sector remains very buoyant as profit growth in the sector rose to 27.2% in the year to September from 24.0% previously. Sharp increases in the prices of finished goods, such as steel and copper, helped profits increase by the most in nearly six years.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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