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Aon Retirement and Investment Blog

Weekly Update - 04 September 2017


MARKET MOVES - Week Ending September 01, 2017
  • Global equity markets advanced for a second consecutive week despite ongoing geopolitical concerns in the Korean peninsula and destruction caused by Hurricane Harvey in the US. Encouraging economic data, particularly in the manufacturing sector, across major economies supported global equities. MSCI World Index rose by 1.1% over the week, underperforming the S&P 500 index which rose by 1.4% over the same period. On a year to date basis, the MSCI World Index has outperformed the S&P 500 (14.3% vs. 12.2%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 index rose by 2.7% whilst the S&P 500 index rose by 1.4% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (12.2% vs. 5.0%). Growth stocks outperformed Value stocks last week as measured by MSCI USA indices (2.0% vs. 0.9%). On a year to date basis, Growth stocks have outperformed Value stocks (18.6% vs. 6.5%).
  • The 10 year US treasury yields was flat at 2.17% whilst the 30 year US treasury yields rose by 3bps to 2.78%.
  • The 20 year TIPS yield fell by 3bps to 0.54% over the week and the 20 year breakeven inflation rate rose by 3bps to 1.72%.
  • The spread on the Barclays Capital Long Credit index over Treasury yields remained flat at 160bps while the Merrill Lynch US Corporate Index rose by 1bp to 115bps over the week. The US high yield bond spread over US treasury yields fell by 7bps to 382bps. The spread of USD denominated EM debt over US treasury yields finished the week 7bps lower at 295bps.
  • The S&P GSCI rose by 2.0% in USD terms over the week. The energy sector rose by 2.5% despite the price of WTI crude oil decreasing by 0.7% to $47/BBL as the crude oil refineries in the US got affected by Hurricane Harvey. Industrial metals rose by 3.1% as copper prices increased by 2.3% to $6,805/MT. Agricultural prices rose by 0.7% and gold prices rose by 2.2% to $1,322/ounce.  
  • The US dollar depreciated against major currencies except for the yen. The US dollar depreciated by 0.7% against sterling, ending the week at $1.30/£. The US dollar depreciated by 0.1% against the euro, ending the week at $1.19/€. The Japanese yen depreciated by 0.9% against the US dollar, ending the week at ¥110.20/$.
Economic Releases
  • Economic releases in the US were fairly mixed over last week. GDP growth (quarter-on-quarter annualised) over the second quarter of 2017 was revised up to 3.0% from 2.6% on the back of higher than initially estimated consumer and federal government expenditure. The manufacturing sector expanded at a faster pace than forecasted as the Institute of Supply Management's (ISM) manufacturing index showed an increase to a six year high of 58.8 from 56.3. Analysts had forecasted a milder 0.2 point increase to 56.5. US labour market data was disappointing with the change in nonfarm payrolls underperforming expectations, growing by only 156k against consensus estimates of 180k. The unemployment rate missed expectations and rose to 4.4% from 4.3% and annual wage growth remained at 2.5% (below the expected 2.6% growth).
  • Eurozone economic confidence rose to 111.9 from 111.3; the highest level since the onset of the Financial Crisis. The increase was largely driven by improving sentiment in the industrial and services sector over August. Annual consumer price inflation for the Eurozone region exceeded expectations of 1.4% as prices rose by 1.5% over the year; up from 1.3% recorded in July. Core inflation, however, was unchanged at 1.2%. As expected, Eurozone unemployment was unchanged at 9.1% in July. In Germany, retail sales fell by 1.2% over July, missing expectations of a milder 0.6% decline.
  • Japanese economic data was mixed over the week. The provisional release for industrial production growth showed a decline of 0.8% over the year to July, down from the 2.2% increase seen in June and below the estimated 0.3% decrease. The jobless rate remained unchanged at 2.8% in July. However, the job-to-applicant ratio continued on an upward trend by rising to 1.52 over the same period – the highest level since February 1974. Retail sales outperformed expectations of 1.0% growth by rising 1.9% over the year to July, following 2.2% growth in June. This result was despite overall household spending declining by 0.2% over the same period.
  • In China, PMI releases painted a fairly mixed picture of the economy. While still being in expansionary territory, the official non-manufacturing PMIs moved lower to 53.4 from 54.5, indicating a deceleration in the sector. Meanwhile, the manufacturing PMI bounced back to 51.7 from 51.4 and above expectations of a slight decrease to 51.3. Similarly, the Caixin manufacturing PMI, which focuses more on small and mid-sized businesses, unexpectedly rose over July, moving to 51.6 from 51.1. Analysts had predicted a small decrease to 51.0.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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