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Aon Retirement and Investment Blog

Weekly Update - 03 September 2018

MARKET MOVES (Week ending September 2, 2018)
Equities

  • Global equity markets rose over the week with U.S. equity markets breaching previous record highs. Equity markets rose on the back of easing trade tensions as the U.S. and Mexico reached an agreement on a revamped NAFTA (North American Free Trade Agreement) trade deal and the European Union’s chief Brexit negotiator, Michel Barnier, indicated that an "unprecedented" Brexit deal for the UK may be possible. However, markets retreated later in the week as U.S. President Donald Trump threatened to leave the World Trade Organization and move ahead with his plans to impose additional tariffs on $200bn of Chinese imports. The S&P 500 Index rose by 1.0% over the week, outperforming the MSCI World Index which rose by 0.7%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (9.9% vs. 5.3%). 
  • U.S. Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 1.0% whilst the Russell 2000 Index rose by 0.9%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (14.3% vs. 9.9%). Growth stocks outperformed Value stocks over the week as Growth stocks rose by 1.6% whilst Value stocks rose by 0.3%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (16.9% vs. 3.3%).
Bonds
  • The 10-year and 30-year U.S. treasury yields both rose by 3bps each to 2.85% and 3.01% respectively. The 20-year TIPS yield rose by 6bps to 0.85% while the 20-year breakeven remained unchanged at 2.10%. 
  • The spread of the Bloomberg Barclays Capital Long Credit Index over the yield on U.S. treasuries and the Bank of America Merrill Lynch U.S. Corporate Index credit spread both rose by 2bps, ending the week at 165bps and 121bps, respectively. The U.S. high yield bond spread over U.S. treasury yields rose by 3bps to 349bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 7bps to 370bps over the week.
Commodities  
  • The S&P GSCI rose by 1.1% in USD terms over the week. The energy sector rose by 1.6% as the price of WTI crude oil gained 1.6% to US$70/BBL. Crude oil prices rose as U.S. crude oil inventories and Iranian crude exports both fell. Industrial metals fell by 1.1% despite copper prices gaining 0.3% to US$6,019/MT. Agricultural prices rose by 0.6% and the gold price gained 0.4% to US$1,202/ounce.
Currencies
  • The U.S. dollar weakened against all major currencies with the exception of the Canadian dollar. The U.S. dollar depreciated by 1.1% against sterling, ending the week at $1.30/£. The U.S. dollar depreciated by 0.1% against the euro, finishing the week at $1.16/€. The U.S. dollar depreciated by 0.3% against the Japanese yen, ending the week at ¥110.89/$. The U.S. dollar remained broadly unchanged against the Canadian dollar over the week to close at C$1.30/$.      
Economic Releases
  • The U.S. economy recorded its faster rate of growth in nearly four years as U.S. GDP growth for the second quarter of 2018 was revised higher to 4.2% from 4.1%, exceeding expectations of a slightly slower 4.0%. The fast pace of growth is, however, unlikely to be sustained with a number of one-off factors influencing growth – namely, the fiscal impulse from tax cuts and a front-loading of exports to avoid the imposition of tariffs. Nevertheless, the U.S. consumer appears to be buoyant with the Conference Board's Consumer Confidence index reaching a near 18-year high of 133.4; up from a revised 127.9 and forecasts of 126.6. The advance reading of the U.S. trade deficit widened by more than analyst forecasts, growing to $72.2bn from a downwardly-revised $67.9bn. The U.S. Federal Reserve's (Fed) preferred measure of consumer price inflation, the core Personal Consumption Expenditure price deflator, met expectations in the second quarter and moved to 2.0% – in line with the Fed's inflation target.
  • Consumer prices in the Eurozone rose by 2.0% in the year to August, marginally slowing from July and undershooting the 2.1% inflation rate forecasted by analysts. Consumer prices in Germany also grew by 2.0% in the year to August, matching expectations and in line with last month's inflation rate. The Eurozone unemployment rate in July was in line with analyst forecasts at 8.2%, unchanged from June’s downwardly-revised figure at the lowest level since December 2008. Elsewhere, retail sales in Germany declined by 0.4% in July, slowing from 1.2% growth recorded previously and falling short of expectations of a 0.2% decline. 
  • Japanese industrial production contracted marginally by 0.1% in July, based on preliminary data, partly due to major flooding in the country. It was worse than the forecasted 0.2% increase but a marked improvement from June's 1.8% fall. Retail sales inched slightly higher in July but the pace of growth almost ground to a halt at 0.1% from the revised 1.4% increase in June. July’s employment report was little changed from the previous month as the jobless rate moved to 2.5% while the job-to-applicant ratio rose marginally to 1.63.
  • The official Chinese manufacturing Purchasing Mangers' Index (PMI) for August rose by 0.1 to 51.3, supported by a pick-up in production. However, new export orders fell as indicated by rising inventories of finished goods. The services sector also surpassed expectations of a 0.3 point fall with the non-manufacturing PMI rising to 54.2 from 54.0. Industrial profit growth slowed for a third consecutive month to 16.2% over the year to July from the previous reading of 20.0% as a combination of weaker domestic consumption, rising credit defaults and U.S. trade tensions impacted the Chinese economy.
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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