Aon Retirement and Investment Blog

Weekly Update - 24 September 2018

September 24, 2018

NEW INTELLECTUAL CAPITAL

• Fintech in 2018: How Firms Are Using M&A to Embrace Innovation: Aon Risk Solutions will be hosting this webinar on Wednesday, September 19 at 2:00pm Eastern. Leaders from our Financial Institutions and M&A Transaction Solutions teams will discuss questions emerging from firms as they embrace fintech to enable efficiency and innovation.  How does embracing emerging technology and digital strategy impact risk for financial institutions?  What are the trends in financial services and fintech M&A? What strategies should financial services companies employ to ensure they are properly covered through M&A transactions?

• Global equity markets rose over the week. Economic data was stronger overall, and retaliation by China on US tariffs less than feared. The US imposed 10% tariffs on US$200bn of Chinese imports effective from 24 September, with a threat to increase to 25% in 2019. However, China's response including reassurance from Premier Li Keqiang not to devalue the Renminbi appeared to sooth markets. Despite the trade tensions, the S&P 500 and Dow Jones Industrial Average index both touched their record highs during the week. The S&P 500 Index rose by 0.9% over the week, underperforming the MSCI World Index which rose by 1.6%. On a year-to-date basis, the S&P 500 Index has outperformed the MSCI World Index (11.1% vs. 6.6%).
• US Small Cap stocks underperformed Large Cap stocks over the week as the Russell 2000 index fell by 0.5% whilst the S&P 500 Index rose by 0.9%. On a year-to-date basis, the Russell 2000 Index has outperformed the S&P 500 Index (12.5% vs. 11.1%). Growth stocks underperformed Value stocks over the week as Growth stocks fell by 0.1% whilst Value stocks rose by 1.6%, as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (16.6% vs. 5.7%).

• The 10-year US treasury yield rose by 8bps to 3.07% and the 30-year US treasury yield rose by 7bps to 3.20%. The 20-year TIPS yield rose by 3bps to 0.98% and the 20-year breakeven rose by 4bps to 2.16%.
• The spreads on both the Bloomberg Barclays Capital Long Credit Index and the Bank of America Merrill Lynch US Corporate Index fell by 3bps to 154bps and 113bps, respectively. The US high yield bond spread over US treasury yields fell by 4bps to 325bps and the spread of USD denominated EM debt over US treasury yields narrowed by 12bps to 343bps over the week. 

• The S&P GSCI rose by 2.1% in USD terms over the week. The energy sector rose by 2.2% as the price of WTI Crude oil rose by 2.6% to US$71/BBL, supported by fall in US crude oil inventories. Industrial metals rose by 4.8% as copper prices rose by 4.3% to US$6,203/MT. Agricultural prices rose by 0.7% and gold prices fell by 0.3% to US$1,199/Ounce.

• The US dollar depreciated against major currencies over the week, with the exception of the Japanese yen. The US dollar depreciated by 0.2% against sterling, ending the week at $1.31/£. The US dollar depreciated by 0.8% against the euro, finishing the week at $1.18/€. The US dollar appreciated by 0.4% against the Japanese yen, ending the week at ¥112.54/$. The US dollar depreciated by 0.9% against the Canadian dollar, ending the week at C$1.29/$. 

• Provisional US Purchasing Managers' Index (PMI) data reflected contrasting fortunes for the manufacturing and services sectors. Business conditions in the former improved over September with the headline manufacturing PMI rebounding from 54.7 to 55.6, surpassing expectations of a more modest increase to 55.0. Conversely, the Services PMI fell to its lowest level in eighteen months with index unexpectedly dropping to 52.9 from 54.8. Over the second quarter of 2018, the US current account deficit narrowed from $124.7bn to $101.5bn; lower than the estimated $103.4bn. In the same Commerce Department's report, it was revealed that a total of $169bn of dividends was paid by US firms from repatriated earnings. In the upcoming week, the US Federal Reserve is widely anticipated to hike the federal funds rate by a further 25bps.
• In Europe, Euro Area retail sales fell 0.2% in July after increasing 0.3% in June, as sales of food, drink and tobacco (-0.6%) and automotive fuel (-0.7%) fell but non-food products rebounded (+0.4%). German industrial production also disappointed as it fell 1.1% in July versus an upwardly revised 0.7% fall in June and market expectations of a 0.2% increase. Factory sales showed a similar trend, falling 0.9% in July against market expectations of a 1.8% increase. Elsewhere, the German trade surplus declined to €16.5bn in July, its lowest level since January 2017, as exports fell 0.9% but imports rose 2.8%. However, the cumulative surplus over the last 12 months is still X (Y% of GDP). Year-on-year GDP growth for the Euro Area was revised down slightly to 2.1%
• In Japan, headline consumer price inflation rose at the fastest pace in six months at 1.3% for the year to August, ahead of consensus estimates of 1.1%. Core CPI, which excludes more volatile food but not energy prices, rose by 0.9% matching consensus estimates. Growth in the manufacturing sector accelerated in September with the preliminary Nikkei PMI manufacturing index rising to 52.9 from August’s reading of 52.5. Japan posted a trade deficit for the second consecutive month despite a boost in exports. Export growth rose to 6.6%for the year to August, more than the 3.9% growth in the previous month and ahead of expectations of 5.2%. However, this was more than offset by the sharp increase in imports which rose by 15.4% over the same period, up from 14.6% in July and ahead of the estimated 14.5% increase. As a result, the trade deficit widened to ¥444.6bn.
• While there was no major economic data points released in China last week, the People's Bank of China (PBoC) injected a further $29bn of loans through its open market operations, the most in two months.

Tags: Weekly