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Aon Retirement and Investment Blog

Weekly Update - 08 October 2018

NEW INTELLECTUAL CAPITAL

  • Insights from The Real Deal 2018: Retirement Income Adequacy Study. Join Aon’s senior executives for this webinar on October 9 at 12:00pm CT as they share actionable insight into important retirement planning issues such as: how much employees need to save in order to maintain their standard of living in retirement, whether employees’ current contributions are sufficient to meet their goals, and the role of employer contributions in helping workers achieve their savings goals.

MARKET MOVES (Week ending October 7, 2018)

Equities
  • Global equity markets fell over the week with all regions posting negative returns. The MSCI World Index fell 1.5% in local currency terms. Rising bond yields weighed on equity returns as US treasury yields rose to their highest level since 2011 on the back of strong US economic data. The S&P 500 fell by 0.9% over the week, outperforming the MSCI World Index, which fell by 1.5%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (9.5% vs. 4.3%). 
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 index fell by 3.8% whilst the S&P 500 Index fell by 0.9%. On a year-to-date basis, the Russell 2000 Index has underperformed the S&P 500 Index (7.3% vs. 9.5%). Growth stocks underperformed Value stocks over the week as Growth stocks fell by 2.2% whilst Value stocks rose by 0.3%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (14.8% vs. 4.1%).
Bonds
  • 10-year US treasury yields rose by 18bps to 3.23% and the 30-year US treasury yield rose by 20bps to 3.40% in a week in which the unemployment rate reached its lowest level since 1969. The 20-year TIPS yield rose by 18bps to 1.15% and the 20-year breakeven rose by 3bps to 2.19%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index fell by 2bp to 151bps and the Bank of America Merrill Lynch US Corporate Index rose by 2bps to 113bps. The US high yield bond spread over US treasury yields rose by 8bps to 332bps and the spread of USD denominated EM debt over US treasury yields rose by 4bps to 339bps over the week.
Commodities   
  • The S&P GSCI rose by 1.7% in USD terms over the week. The energy sector rose by 1.7% as the price of WTI Crude oil rose by 1.5% to US$74/BBL. Industrial metals rose by 0.6% despite copper prices remaining broadly unchanged at US$6,183/MT. Agricultural prices rose by 3.5% and gold prices rose by 1.4% to US$1,204/Ounce. 
Currencies
  • The US dollar's movements against major currencies over the week were mixed. The US dollar depreciated by 0.3% against sterling, ending the week at $1.31/£. The US dollar appreciated by 0.9% against the euro, finishing the week at $1.15/€. The US dollar appreciated by 0.1% against the Japanese yen, ending the week at ¥113.75/$. The US dollar remained broadly unchanged against the Canadian dollar, ending the week at C$1.29/$.  
 Economic Releases
  • In the US, the Institute of Supply Management's (ISM) manufacturing index dipped from a 14-year high of 61.8 to 59.8; marginally below expectations of a reading of 60.0. Conversely, non-manufacturing sector growth accelerated over September as the ISM non-manufacturing index rose to 61.6 from 58.5 – the highest level since records began in 2008. Against the backdrop of the US unemployment rate falling to a multi-decade low of 3.7%, further labour market gains looked hard to come by with the 134k increase in non-farm payrolls falling well short of the 185k increase. That being said, previous readings were revised significantly higher; August rose to 270k from 201k while July's reading increased to 165k from 147k. 
  • Data in Europe was also mixed over the week. The Eurozone unemployment rate fell by 0.1% to 8.1% in August, its lowest level since November 2008. Retail sales data were less positive, falling 0.2% in August while July's reading was revised lower to a 0.6% fall. In Germany, factory orders rebounded from July's unexpected decline and rose 2.0% in August, well above market consensus of 0.5%. The increase was driven by a 5.8% surge in foreign demand. Elsewhere, German retail sales continued to decline in August, falling 0.5% versus expectations of a 0.5% increase and the previous month's 0.4% decline.
  • Japanese economic data was generally disappointing. The Bank of Japan’s Q2 2018 Tankan survey revealed a more pessimistic outlook for the Japanese manufacturing sector for the third straight quarter with the Tankan large manufacturer’s index falling to 19 from the previous reading of 21. Elsewhere, labor markets slowed as labour cash earnings slowed to 0.9% in the year to August, down from the 1.5% increase in the previous month and below a forecasted increase of 1.3%. In more positive news, Japanese household spending increased at the fastest rate in three years as spending rose by 2.8% over the year to August; up from 0.1% recorded in the previous month and expectations of similar growth. 
  • In China, growth in the services sector accelerated in September with the Caixin services PMI rising to 53.1 from 51.5; above expectations of 51.4. However, the employment sub-index slipped to 49.0 reflecting the first contraction since July 2016 and indicating that companies are shedding more workers than hiring. To mitigate the potential effect of escalating trade tensions, the People’s Bank of China (PBoC) slashed the reserve requirement ratio by 1% for large institutions and smaller banks. It is estimated that this move will inject over $100bn into the Chinese banking system. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.


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