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Aon Retirement and Investment Blog

Weekly Update - 17 September 2018

MARKET MOVES (Week Ending September 16, 2018)

  • Over the last week, the US and China took steps towards resuming trade talks, whilst the US looks set to impose tariffs on $200bn of Chinese imports. Emerging market equities continued to underperform in a week where the Central Bank of Turkey raised rates to 24% in an attempt to arrest the fall in the Lira. As widely expected, both the Bank of England and the European Central Bank kept their interest rates unchanged. The S&P 500 Index rose by 1.2% over the week, underperforming the MSCI World Index which rose by 1.4%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (10.2% vs. 4.9%).
  • US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 index rose by 0.5% whilst the S&P 500 Index rose by 1.2%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (13.1% vs. 10.2%). Growth stocks outperformed Value stocks over the week as Growth stocks rose by 1.5% whilst Value stocks rose by 0.9%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (16.6% vs. 4.0%).
  • The 10-year US treasury yield rose by 5bps to 2.99% and the 30-year US treasury yield rose by 3bps to 3.13% despite softening inflation data in the US. The 20-year TIPS yield rose by 3bps to 0.95% and the 20-year breakeven rose by 1bp to 2.12%.
  • The spread of the Bloomberg Barclays Capital Long Credit Index over the yield on US treasuries fell by 7bps to 157bps and the Bank of America Merrill Lynch US Corporate Index credit spread fell by 4bps to 116bps. The US high yield bond spread over US treasury yields fell by 19bps to 329bps and the spread of USD denominated EM debt over US treasury yields fell by 12bps to 355bps over the week. 
  • The S&P GSCI rose by 0.8% in USD terms over the week. The energy sector rose by 1.3% as the price of WTI Crude oil rose by 1.8% to US$69/BBL. Industrial metals fell by 0.6% despite copper prices rising by 1.1% to US$5,947/MT. Agricultural prices fell by 1.4% and gold prices rose by 0.3% to US$1,202/ounce.
  • The US dollar depreciated against major currencies over the week, with the exception of the Japanese yen. The US dollar depreciated by 1.0% against sterling, ending the week at $1.31/£. The US dollar depreciated by 0.7% against the euro, finishing the week at $1.17/€. The US dollar appreciated by 0.9% against the Japanese yen, ending the week at ¥112.10/$. The US dollar depreciated by 0.9% against the Canadian dollar, ending the week at C$1.30/$. 
Economic Releases 
  • Inflationary pressures in the US looked to have eased slightly over August as consumer price inflation slowed on a year-on-year basis to 2.7%, below expectations of 2.8% and from last month's reading of 2.9%. Moreover, core inflation unexpectedly fell back from a decade-high of 2.4% to 2.2%. Slowing inflation appears to have benefited US consumers with real wage growth, as measured by real average hourly earnings, rebounding by 0.2% following last month's revised 0.1% decline. A favourable outlook for the labour market and wages supported an increase in the University of Michigan's Consumer Sentiment index to a six-month high of 100.8 from 96.2. Analysts had expected a modest increase to 96.6. However, the positive consumer sentiment release followed disappointing retail sales growth figures which inched up just 0.1% over August compared to expectations of 0.4% and July's upwardly revised reading of 0.7%.
  • The European Central Bank also left its main rates unchanged at their September meeting but reconfirmed the reduction in their bond purchases from €30bn to €15bn in October and for the programme to stop altogether in December. Eurozone industrial production fell 0.8% in July, below market expectations of a 0.5% fall, and slipped 0.1% lower on a year-on-year basis. This was the first year-on-year decline since January 2017 and well below market expectations of a 1.0% increase. The September ZEW economic sentiment indicator rose 3.9 points to -7.2 as more analysts continue to expect economic activity to get worse than better. Elsewhere, the German indicator rose 3.1 points to -10.6.
  • In Japan, core machine orders recovered after June's disappointing 8.8% decline, growing by 11.0% in July. Over the year to August, the producer price index increased by 3.0%, in line with July's revised reading but below the forecasted increase of 3.1%. The Tertiary Industry index rebounded in July as it matched estimates and rose by 0.1%. However, the previous month's reading was revised slightly lower to -0.6%.
  • In China, industrial production for the year to August increased as expected by 6.1%, above the 6.0% increase previously recorded. Retail sales growth outperformed forecasts of an 8.8% increase and accelerated by 9.0% over the year to August. Analysts had expected no change in sales growth. The positive releases were, however, offset by disappointing growth in fixed asset investment, which slowed over the first eight months to a historic low of 5.3%. This was not only below the 5.5% increase that was previously recorded but fell short of an expected acceleration to 5.6%.

Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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