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Aon Retirement and Investment Blog

Weekly Update - 15 October 2018

NEW INTELLECTUAL CAPITAL

  • The Real Deal: 2018 Retirement Income Adequacy. The Real Deal is a comprehensive study of retirement resources, needs, and strategies employers can implement to improve retirement outcomes for employees. You can download the report and see our key insights at aon.com/therealdeal.
  • Bank Capital Relief. Aon Hewitt Investment Consulting’s liquid alternatives team has shared a white paper on Bank Capital Relief, a new strategy brought about by recent regulatory changes in the European banking industry. The white paper provides an overview of this strategy, the inception of this opportunity, and its implementation opportunities. The white paper can be accessed here
MARKET MOVES (Week ending October 14, 2018)
Equities
  • Global equity markets fell for a second successive week. Expectations of rising US yields aggravated concerns about the sustainability of the equity bull market as 10-year US treasury yields briefly reached a seven-year high last week. The MSCI AC World Index fell by 3.8% in USD terms with all sectors generating negative returns. The CBOE Volatility Index (VIX), which measures volatility in the US equity market touched its highest level in more than six months as it crossed its long-term average of 20. Both the S&P 500 and MSCI World index fell by 4.1% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (5.1% vs. 0.1%).
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 index fell by 5.2% whilst the S&P 500 Index fell by 4.1%. On a year-to-date basis, the Russell 2000 Index has underperformed the S&P 500 Index (1.7% vs. 5.1%). Growth stocks and Value stocks both fell by 4.1% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (10.1% vs. -0.2%).
Bonds
  • The 10-year US treasury yields fell by 9bps to 3.14% and the 30-year US treasury yield fell by 8bps to 3.32% in a week in which the headline consumer price inflation recorded slowing price increases. The 20-year TIPS yield fell by 3bps to 1.12% and the 20-year breakeven fell by 6bps to 2.13%.
  • Credit spreads widened over the week as corporate bonds fell in tandem with equities markets. The spreads on the Bloomberg Barclays Capital Long Credit Index went up by 4bps to 155bps and the Bank of America Merrill Lynch US Corporate Index rose by 3bps to 116bps. The US high yield bond spread over US treasury yields rose by 22bps to 354bps and the spread of USD denominated EM debt over US treasury yields rose by 11bps to 350bps over the week. 
Commodities   
  • The S&P GSCI fell by 2.6% in USD terms over the week. The energy sector fell by 3.9% as the price of WTI Crude oil fell by 4.0% to US$71/BBL. Industrial metals fell by 0.3% despite copper prices increasing by 2.3% to US$6,325/MT. Agricultural prices rose by 1.4% and gold prices rose by 1.3% to US$1,220/Ounce. 
Currencies
  • The US dollar depreciated against most major currencies (except the Canadian dollar) over the week. The US dollar depreciated by 0.6% against sterling, ending the week at $1.32/£. The US dollar depreciated by 0.4% against the euro, finishing the week at $1.16/€. The US dollar weakened by 1.5% against the Japanese yen, ending the week at ¥112.12/$. The US dollar appreciated by 0.7% against the Canadian dollar, ending the week at C$1.30/$.  
Economic Releases
  • Inflationary pressure in the US appeared to have eased further in September. Consumer price inflation slowed on a year-on-year basis to 2.3%, below expectations of 2.4% and down from last month's reading of 2.7%. It was the lowest inflation rate in seven months, as slowing energy costs helped to drive inflation lower. Core inflation, which excludes volatile food and energy components, remained at 2.2%. Slowing inflation looks to have benefited US consumers, as real average hourly earnings increased by 0.5% in the year to September, up from last month's reading of 0.2%. Meanwhile, the University of Michigan's Consumer Sentiment index unexpectedly fell by 1.1 point to 99.0, below analyst forecasts of a 100.5 reading. 
  • Data in Europe was mixed over the week. Eurozone industrial production increased by 1.0%in August, reversing the 0.7% decline recorded in July and beating analyst forecasts of a 0.5% increase. In Germany, industrial production fell for the third consecutive month, falling by 0.3% in August, below expectations of a 0.3% increase. As expected, consumer price inflation in Germany was confirmed at 2.3% in the year to September, the highest rate in nearly seven years. The Eurozone Sentix Investor Confidence index fell by 0.6 points to11.4, undershooting expectations of a 0.4 point decrease.
  • In Japan, core machine orders defied analysts’ expectations of a 3.9% decline, increasing by 6.8% in August, but slowing from the 11.0% growth recorded in the previous month. Over the year to September, the producer price index increased by 3.0%, in line with August’s reading and slightly above the forecasted increase of 2.9%. The current account surplus narrowed to ¥1,838.4bn in August, below forecasts. 
  • In China, exports rose by 14.5% in the year to September, well ahead of the 9.1% growth recorded previously and 8.2% growth forecasted by analysts. Over the same period, imports increased by 14.3%, lower than the expected 15.3% rise. This led to a widening of China's trade surplus to US$31.69bn, well ahead of analyst estimates of a US$19.2bn surplus. Amidst intensifying trade tensions between the US and China, China’s trade surplus with the US rose to a record high of US$34.13bn in September, up from the US$31.05bn in August, as importers front-loaded orders to avoid additional tariffs.
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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