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Aon Retirement and Investment Blog

Weekly Update - 25 September 2017

  • Please join us for the Global Pension Risk Survey Webinar  on September 28. As one of Aon Hewitt’s highest profile research studies, we will present our results and findings on pension design, settlement activity, and other risk management strategies being employed by corporate pension plan sponsors. The webinar will be held three different times to accommodate all time zones—APAC, EMEA, and Americas. Register now!
MARKET MOVES (week ending September 22, 2017)
  • Global equity markets generated modest returns over the week as the US Federal Reserve (Fed) suggested it would begin trimming its $4.5 trillion balance sheet in October and signaled another interest rate hike this year. Geopolitical tensions prevailed with the US President Donald Trump imposing new sanctions on North Korea as leader Kim Jong Un threatened to detonate a hydrogen bomb in the Pacific .MSCI World Index rose 0.4% over the week, outperforming the S&P 500 index which marginally rose by 0.1% over the same period. On a year to date basis, the MSCI World Index has outperformed the S&P 500 (16.1% vs. 13.4%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 index rose by 1.3% whilst the S&P 500 index rose by 0.1% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (13.4% vs. 7.9%). Growth stocks underperformed Value stocks last week as measured by MSCI USA indices (-0.2% vs. 0.5%). On a year to date basis, Growth stocks have outperformed Value stocks (18.9% vs. 8.6%).
  • The 10 year US treasury yields rose by 5bps to 2.25% whilst the 30 year US treasury yields rose by 1bp to 2.78%  over increased expectations of another rate hike by the Fed this year .
  • The 20 year TIPS yield rose by 5bps to 0.56% over the week and the 20 year breakeven inflation rate fell by 2bps to 1.75%.
  • The spread on the Barclays Capital Long Credit index over Treasury yields fell by 3bps to 155bps while the Merrill Lynch US Corporate Index fell by 3bps to 111bps over the week. The US high yield bond spread over US treasury yields fell by 9bps to 364bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps higher at 290bps.
  • The S&P GSCI rose by 0.6% in USD terms over the week. The energy sector rose by 0.8% as the price of WTI oil increased by 0.9% to $50/BBL. Industrial metals rose by 0.9% despite copper prices decreasing by 0.7% to $6,416/MT. Agricultural prices fell by 0.5% and gold prices fell by 2.0% to $1,296/ounce.  
  • The US dollar appreciated against major currencies except for the euro. The US dollar appreciated by 0.5% against sterling, ending the week at $1.35/£. The US dollar was broadly unchanged against the euro, ending the week at $1.20/€. The Japanese yen depreciated by 0.8% against the US dollar, ending the week at ¥111.94/$.
Economic Releases
  • The US Federal Reserve (Fed) announced last week that it will start to reverse its multi-trillion dollar balance sheet starting in October. However, the Fed voted to leave the target Federal target rate range unchanged at 1.00-1.25%. As expected, manufacturing sector surveyed activity picked up slightly with the Markit manufacturing Purchasing Managers' Index (PMI) inching 0.2 points higher to 53.0. There was further positive news as business sentiment, according to the Philadelphia Federal Reserve's Business Outlook survey, rose to its highest level in three months. The business sentiment index outperformed expectations and advanced to 23.8 from 18.9 above the 17.1 forecasted. US current account data disappointed slightly as the current account deficit widened to $123.1bn from a revised $113.5bn over the second quarter of 2017; the highest level since 2008. The deficit was expected to increase more modestly to $116.0bn.
  • The Eurozone Markit flash PMIs for Germany and the wider Eurozone was above market expectations in September. In Germany, the composite PMI ticked up two points to 57.8 against expectations of 55.7, which marked a seventy-seven month high. The Eurozone’s composite PMI was also up one point to 56.7, ahead of the estimated 55.6 and just below this year’s cyclical highs. Solid growth for the region was driven by both the manufacturing (58.2 versus 57.2 expected) and services sectors (55.6 versus 54.8 expected). The Eurozone’s confidence index also edged up 0.3 points to a sixteen year high of -1.2 which beat the forecasted -1.5. In Germany, the September ZEW economic sentiment survey was above market expectations in the lead up to German parliamentary elections. The reading for the current situations component was 87.9, against forecasts of 86.2 and the expectations component was also higher at 17.0 versus estimates of 12.0. The ZEW survey for Eurozone expectations rose to 31.7 from 29.3 previously.
  • Japanese economic data was encouraging over the week. As expected, the Bank of Japan kept its monetary policy unchanged. The trade surplus fell to ¥113.6bn in August from a revised trade surplus of ¥421.7bn in the previous month. However, this was still above expectations of ¥104.4bn. Exports surged by 18.1% over the year to August (the largest gain in almost four years) while imports rose by 15.2% over the same period.
  • Chinese property prices slowed over August amid curbs imposed to dampen excessive demand. The average house price in China's major seventy cities rose by 0.2% which was lower than the previous month's reading of 0.4% and markedly lower than the 8.3% growth seen a year earlier.
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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