Week in Markets (Week Ending February 24, 2019)

February 26, 2019

New Intellectual Capital

  • Aon’s Chief Investment Officer Newsletter. In this issue of the CIO newsletter, we review a particularly volatile quarter in capital markets and how our portfolio positioning adapted.  For the longer term outlook, we consider how the rise of populist nationalism around the globe may affect investors in the coming years.
  • Corporate Pension Liability Hedging Views 1-31-2019. This update from the U.S. Practice provides corporate pension liability hedging views as of January 31, 2019.
  • U.S. Discount Rate UpdateAverage discount rates decreased during January, as credit markets experienced a strong start to 2019. In February, rates have decreased by an additional 6 basis points through Tuesday, February 19th.


  • Global equity markets rose over the week, benefiting from positive developments in US-China trade negotiations. US President Donald Trump confirmed that he will delay imposing additional tariffs of $200bn on Chinese goods due to "significant progress" made in US-China trade negotiations. However, President Trump threatened the EU with auto tariffs if a deal could not be reached, following a Commerce Department report on the national security risks of EU auto imports to the US.
  • Manufacturing PMIs fell across the board in February amidst ongoing trade tensions and a slowdown in global growth.
  • The S&P 500 index rose by 0.7%, underperforming the MSCI World index which rose by 1.0%. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (11.7% vs 11.1%). 
  • US Large Cap stocks underperformed Small Cap stocks over the week as the S&P 500 index rose by 0.7% and the Russell 2000 index rose by 1.3%. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (11.7% vs. 18.1%). Growth stocks and Value stocks rose by 0.6% and 0.7% respectively over the week as measured by MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (13.3% vs 10.8%). 


  • The 10-year US treasury yield fell by 2bps to 2.65% whilst the 30-year US treasury yield rose by 2bps to 3.02%. The 20-year TIPS yield fell by 6bps to 0.90% and the 20-year breakeven inflation rate rose by 8bps to 1.96%.
  • The spreads on the Bloomberg Barclays Capital Long Credit Index rose by 1bp to 176bps and the Bank of America Merrill Lynch US Corporate Index remained unchanged at 132bps. The US high yield bond spread over US treasury yields fell by 7bps to 405bps. The spread of USD denominated EM debt over US treasury yields fell by 5bps to 354bps over the week. 


  • The S&P GSCI index rose by 1.5% in USD terms over the week. The S&P GSCI Energy index rose by 1.9% as the price of WTI Crude oil rose by 3.0% to US$57/BBL. Industrial metal prices rose by 3.8% as copper prices rose by 4.8% to US$6,489/MT. Agricultural prices fell by 0.4% and gold prices rose by 0.9% to US$1,329/Oz.   


  • The US dollar depreciated against major currencies (except the Japanese yen). The US dollar depreciated by 1.6% against sterling, ending the week at $1.31/£. The US dollar depreciated by 0.7% against the euro, finishing the week at $1.13/€. The US dollar appreciated by 0.2% against the Japanese yen, ending the week at ¥110.76/$. The US dollar declined by 0.7% against the Canadian dollar, ending the week at C$1.32/$.   

 Economic Releases

  • In the US, orders for durable goods rose by 1.2% in December from an upwardly revised 1.0% in the previous month and against analyst forecasts of a 1.7% increase. However, orders for non-defense capital goods (excluding aircraft), which is viewed as a proxy for business investment, missed expectations of a 0.2% increase in December and fell 0.7%. This negative news was compounded by a downward revision of November's release from a 0.6% decrease to a 1.0% dip. The provisional February release of the Manufacturing Purchasing Managers' Index (PMI) was also disappointing with the index falling to a seventeen-month low of 53.7 from 54.9. However, the Services PMI rose to an eight-month high of 56.2 from 54.2 and surpassed the 0.1 point expected increase. Elsewhere, the Philadelphia Fed Business Outlook recorded the first negative reading in nearly three years as it fell sharply to -4.1 from 17.
  • Euro Area Markit Manufacturing PMI continued to disappoint with the February preliminary reading falling to 49.2 from 50.5, indicating the first contraction since 2013. German Manufacturing PMIs also remained in contraction territory with the index falling to a 6 year low of 47.6, well below the consensus estimate of it marginally increasing to 49.8 from 49.7. Services PMIs fared better, with both the Euro Area and German services PMIs exceeding analyst forecasts and increasing to 52.3 and 55.1 from 51.2 and 53, respectively. Elsewhere, Euro Area consumer confidence improved to -7.4 in February from -7.9 in January whilst German business confidence fell to its lowest level since 2014, with the IFO business Climate index fell to 98.5 from 99.3.
  • In Japan, headline consumer price inflation met expectations and slowed to 0.2% from 0.3% for the year to January. Core consumer price inflation, which excludes more volatile food but not energy prices, came in at 0.8% meeting consensus estimate and higher than the 0.7% previous reading. Japan's manufacturing sector contracted for the first time since 2016 with the preliminary Nikkei PMI manufacturing index slipping into contractionary territory, falling to 48.5 from January’s reading of 50.3. Japan posted a trade deficit of ¥1415.2bn in January, higher than analyst forecasts of a ¥1029.1bn deficit and significantly higher than December’s ¥56.7bn deficit. Exports declined by 8.4% in the year to January, the quickest pace of contraction since October 2016 as shipments to China fell. Imports slipped by 0.6% over the same period but less than the estimated 3.5% decrease.
  • While ongoing trade talks were a focus over the week, the People’s Bank of China (PBoC) released their quarterly monetary policy report, where the central bank envisioned no cuts to be made to benchmark interest rates despite growing market expectations of a rate cut. Any expansionary policy response, to stimulate credit growth and the domestic economy, is likely to be implemented using other tools such as market-based rates and further decreases to banks' reserve requirement ratios. 

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

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