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Aon Retirement and Investment Blog

Weekly Update - 11 September 2017


  • Hurricane Harvey Relief – IRS and DOL Guidance.  On August 30, the U.S. Department of Labor (DOL) issued News Release 17-1216-NAT, which provides compliance guidance for U.S. retirement plans with administrative procedures and processes which may have been disrupted by Hurricane Harvey. (The DOL also issued FAQs for Participants and Beneficiaries Following Hurricane Harvey.) Much of the DOL relief comes in the form of a general position on delayed, limited, or non-enforcement for certain compliance failures attributable to Hurricane Harvey. 
MARKET MOVES - Week Ending September 08, 2017
  • Geopolitical concerns in the Korean Peninsula continued to overshadow global equity markets after North Korea successfully tested a hydrogen bomb. Meanwhile, destruction caused by Hurricane Harvey and concerns over the impact of Hurricane Irma weighed on the US market. MSCI World Index was broadly unchanged over the week, outperforming the S&P 500 index which fell by 0.6% over the same period. On a year to date basis, the MSCI World Index has outperformed the S&P 500 (14.2% vs. 11.5%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 index fell by 1.0% whilst the S&P 500 index fell by 0.6% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (11.5% vs. 4.0%). Growth stocks outperformed Value stocks last week as measured by MSCI USA indices (-0.4% vs. -0.8%). On a year to date basis, Growth stocks have outperformed Value stocks (18.06% vs. 5.59%).
  • The 10 year US treasury yields fell by 12bps to 2.05% whilst the 30 year US treasury yields fell by 11bps to 2.67%  over the reduced prospects of another rate hike by the US Federal Reserve this year
  • The 20 year TIPS yield fell by 13bps to 0.41% over the week and the 20 year breakeven inflation rate rose by 1bps to 1.73%.
  • The spread on the Barclays Capital Long Credit index over Treasury yields rose by 4 to 164bps while the Merrill Lynch US Corporate Index rose by 2bps to 117bps over the week. The US high yield bond spread over US treasury yields rose by 10bps to 392bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp higher at 296bps.
  • The S&P GSCI rose by 0.2% in USD terms over the week. The energy sector rose by 0.2% as the price of WTI oil increased by 0.3% to $47/BBL. Industrial metals fell by 2.8% as copper prices decreased by 1.9% to $6,672/MT. Agricultural prices rose by 1.1% and gold prices rose by 1.8% to $1,346/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 had a weaker tone in the US over the course of last week. Although expected, US factory orders tumbled by 3.3% in July after increasing by 3.2% in the previous month. In particular, orders for transportation equipment sharply dropped by 19.2% over the month. Whereas the Institute of Supply Management's (ISM) manufacturing index rose to a six-year high in the previous week, the ISM non-manufacturing index missed expectations of 55.6 and slipped to 55.3 from 55.9. The reading is still above 50 which indicates expansion in the service sector. Jobless claims increased by the most since 2012 on the back of the devastation from Hurricane Harvey. Initial jobless claims rose to 298k from 236k, well above consensus estimates of an increase to 246k. The US trade deficit edged higher to $43.7bn from $43.5bn but lower than the expected deficit of $44.7bn.
  • There was positive news in the Eurozone last week, as GDP growth over the year to June was revised upwards to 2.3% from 2.2%. Investor confidence in the region remains buoyant with the Sentix Investor Confidence index unexpectedly increasing from 27.7 to 28.2, above forecasts of a decline to 27.0. Although meeting expectations, retail sales decreased by 0.3% in July, down from the upwardly revised 0.6% growth in June. The finalized Markit Eurozone Services PMI for August was revised lower to 54.7 after an initial reading of 54.9. Within Germany, industrial production was flat in July and failed to meet expectations of 0.5%. This followed a 1.1% decline seen in June. Meanwhile, factory orders unexpectedly fell by 0.7% compared to estimates of 0.2% growth and 0.9% increase recorded in June.
  • The Japanese economy grew at an annualized rate of 2.5% over the second quarter of 2017, down from the preliminary estimate of 4.0% and less than consensus estimates of 2.9%. This was mainly due to softer capital expenditure which only rose by 0.5% instead of 2.4%. Wage growth data disappointed as labor cash earnings fell by 0.3% in the year to July against a forecasted increase of 0.5%, due to a fall in bonus payments. Real wages, which take inflation into consideration, fell by 0.8% over the year to July. The services PMI fell to 51.6 in August from 52.0.
  • In China, consumer price inflation accelerated as the Consumer Price Index (CPI) rose by 1.8% in the year to August; up from the 1.4% increase seen in the year to July. The Caixin Services PMI rose to 52.7 from 51.5. The trade surplus, however, narrowed to $42.0bn from $46.7bn. Import growth rose by 13.3% over the year to August against forecasts of 10.0% growth while the pace of export growth disappointed, slowing to 5.5% from 7.2% previously.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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