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Aon Retirement and Investment Blog

Weekly Update - 29 October 2018

MARKET MOVES (Week ending October 28, 2018)
Equities

  • Global equity markets fell sharply over the week with all the regions posting negative returns. A variety of factors were behind the recent falls such as poor technology stock performance following reported revenue slowdown for Alphabet and Amazon in Q3 2018 as well as continued fears over Chinese growth and heightened geopolitical tensions. The CBOE Volatility Index (VIX), which measures volatility in the US equity market, was again close to 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 3.9% over the week. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (1.0% vs. -3.8%). 
  • US Large Cap stocks marginally underperformed Small Cap stocks over the week as the S&P 500 index fell by 3.9% and the Russell 2000 index fell by 3.8%. On a year-to-date basis, the S&P 500 Index has outperformed Russell 2000 Index (1.0% vs. -2.4%). Growth stocks fell by 4.1% and Value stocks fell by 3.7% over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (4.6% vs. -3.0%).
Bonds
  • The 10-year US treasury yields fell by 12bps to 3.07% and the 30-year US treasury yields fell by 7bps to 3.31% over the week in which the US posted encouraging economic growth data. The 20-year TIPS yield and the 20-year breakeven both fell by 4bps to 1.14% and 2.09% respectively. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index went up by 7bps to 165bps and the Bank of America Merrill Lynch US Corporate Index rose by 6bps to 123bps. The US high yield bond spread over US treasury yields rose by 34bps to 385bps and the spread of USD denominated EM debt over US treasury yields rose by 16bps to 365bps over the week.
Commodities  
  • The S&P GSCI fell by 1.4% in USD terms over the week. The energy sector fell by 2.1% as the price of WTI Crude oil fell by 2.2% to US$68/BBL. Industrial metals fell by 0.8% as copper prices declined by 0.5% to US$6,159/MT. Agricultural prices fell by 0.7% whilst gold prices rose by 0.5% to US$1,234/Oz. 
Currencies
  • The US dollar appreciated against major currencies (except for the yen) over the week. The US dollar appreciated by 1.7% against sterling, ending the week at $1.28/£. The US dollar appreciated by 1.1% against the euro, finishing the week at $1.14/€. The US dollar weakened by 1.0% against the Japanese yen, ending the week at ¥111.44/$. The US dollar appreciated by 0.1% against the Canadian dollar, ending the week at C$1.31/$.  
Economic Releases
  • Although slowing from the 4.2% growth recorded in the previous quarter, the initial reading for third quarter US GDP growth showed that the US economy expanded by an annualized rate of 3.5%; above expectations of a slightly slower 3.3% increase. Purchasing Managers’ Index (PMI) data, which can be used as leading indicator for future growth, pointed towards further economic strength with both manufacturing and services PMI’s exceeding analyst forecasts and increasing to 55.9 and 54.7 from 55.6 and 53.5, respectively. Orders for durable goods defied expectations of a 1.5% decline in September and edged 0.8% higher, although this is markedly down from August’s 4.6%. However, once the more volatile transportation component has been excluded, durable goods orders increased by just 0.1%.   
  • In Europe, the October Markit Eurozone Manufacturing PMI fell to 52.1 from 53.2 in September, below market expectations of a more modest fall to 53.0. This marked the lowest reading in 26 months, as new orders fell for the first time since November 2014 and business confidence hit its lowest level since December 2012. The Markit Services PMI also disappointed at 53.3 versus expectations 54.5 and the previous 54.7 reading in September. German PMIs were also disappointing, as Manufacturing PMI fell to 52.3 from 53.7 whilst Services PMI fell to 53.6 from 55.9. Moreover, the IFO Business Climate index for Germany fell to 102.8 in October from 103.7 in September, as sentiment deteriorated in all sectors bar construction.
  • In Japan, growth in the manufacturing sector accelerated in October with the preliminary Nikkei PMI manufacturing index rising to 53.1 from September’s reading of 52.5. Retail sales slowed to 2.1% over the year to September and thereby matched consensus estimates. On a seasonally-adjusted basis, sales declined by 0.2% in September from August’s 0.9% reading. The final reading for machine tool orders for the year to September was increased slightly to 2.9% from 2.8%. 
  • Against a backdrop of elevated US-China trade tensions, the yuan fell to its weakest level in a decade. In a week that was light of economic releases, industrial profit growth slowed for a fifth consecutive month to 4.1% over the year to September, down from the previous reading of 9.2%. According to the National Statistics Bureau, downward pressure on earnings was exerted by a slowdown in both production and sales as well as slower price increases.
 Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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