Week in Markets (Week Ending March 3, 2019)

March 7, 2019

New Intellectual Capital

  • Pathways Newsletter. The winter issue of the Pathways Newsletter includes insights on capital markets, plan governance, and employee financial wellbeing.
  • Connections Newsletter. This edition of the Connections Non-Profit Newsletter is focused for this edition is building an awareness of key issues for the new year, such as how we view the potential impact and outcomes of the global
    economy and implications for non-profit fiduciaries and the important role that custodial banks fill for non-profit institutions.
  • Hedge Fund Evolution. This piece describes the evolution of hedge funds from the 1990s to today and analyzes how returns have changed as the funds and the environment have evolved. The article also provides some guidance on forward looking return expectations for hedge funds.


  • Global equity markets rose over the week as US-China trade tensions de-escalated after the US suspended its plan to impose additional tariffs on $200bn worth of Chinese imports on 1 March, citing substantial progress on a range of issues. Talks are now entering the final stages, with US President Donald Trump calling for a removal of all tariffs on US agricultural products. 
  • The S&P 500 and the MSCI World index both rose by 0.5% over the week. On a year-to-date basis, the S&P 500 index has outperformed the MSCI World index (12.3% vs 11.7%). 
  • US Large Cap stocks outperformed Small Cap stocks over the week as the S&P 500 index rose by 0.5% while the Russell 2000 index remained unchanged. On a year-to-date basis, the S&P 500 Index has underperformed the Russell 2000 Index (12.3% vs. 18.1%). Growth stocks and Value stocks rose by 0.8% and 0.2% respectively over the week as measured by the MSCI USA Growth and Value Indices. On a year-to-date basis, Growth stocks have outperformed Value stocks (14.2% vs 11.1%). 


  • The 10-year and the 30-year US treasury yield both rose by 10bps each to 2.75% and 3.12% respectively. The 20-year TIPS yield rose by 8bps to 0.98% and the 20-year breakeven inflation rate rose by 3bps to 1.99%. 
  • The spreads on the Bloomberg Barclays Capital Long Credit Index and the Bank of America Merrill Lynch US Corporate Index both fell by 4bps each to 172bps and 128bps respectively. The US high yield bond spread over US treasury yields fell by 19bps to 386bps. The spread of USD denominated EM debt over US treasury yields fell by 14bps to 341bps over the week.


  • The S&P GSCI index fell by 1.8% in USD terms over the week. The S&P GSCI Energy index fell by 2.2% as the price of WTI Crude oil fell by 2.5% to US$56/BBL. Industrial metal prices rose by 0.7% as copper prices rose by 1.3% to US$6,572/MT. Agricultural prices fell by 3.2% and gold prices fell by 1.3% to US$1,312/Oz.    


  • The US dollar had a mixed performance against major currencies over the week. The US dollar depreciated by 1.4% against sterling, ending the week at $1.32/£. The US dollar depreciated by 0.4% against the euro, finishing the week at $1.14/€. The US dollar appreciated by 1.0% against the Japanese yen, ending the week at ¥111.90/$. The US dollar appreciated by 0.4% against the Canadian dollar, ending the week at C$1.32/$.    

Economic Releases

  • Although slowing from the 3.4% growth recorded in the previous quarter, the initial reading for fourth quarter US GDP growth showed that the US economy expanded by 2.6%; above expectations of a 2.2% increase. Personal spending, which accounts for more than two-third of US economic activity, fell by 0.5% in December; the biggest decline since September 2009. However, consumer confidence rebounded strongly over February with the Conference Board's Consumer Confidence index rising to 131.4, above expectation of 124.9 and higher than the previous reading of 121.7. A measure of national factory activity, the Institute of Supply Management's (ISM) manufacturing index for February, fell to 54.2 from 54.6, weakest level in more than two years. As expected, the core Personal consumption expenditure (PCE) index, which strips out volatile items such as energy prices and is one of the Fed’s preferred measures of inflation, held steady at 1.9% for the year to December. 
  • In Europe, headline consumer price inflation accelerated by 0.1% to 1.5% in the year to February, in line with consensus estimates. However, core inflation eased by 0.1% to 1.0%, against expectations of it remaining unchanged. The German inflation rate held steady with the EU-harmonized Consumer Price Index increasing by 1.7% year-on-year in February. The Euro Area Economic Confidence index declined for the 8th consecutive month by falling to 106.1 from 106.3. Elsewhere, German retail sales rebounded by 2.6% in the year to January 2019, well ahead of the upwardly revised 1.6% contraction recorded in December 2018 and 1.2% growth expected by analysts.
  • In Japan, the final reading of the Nikkei manufacturing PMI was revised higher to 48.9 in February, up from a preliminary reading of 48.5 but still remains in contractionary territory. Based on preliminary data, Japanese industrial production fell at its fastest pace in a year, contracting by 3.7% in January. Not only was the fall steeper than the expected 2.5% decline but also significantly more than December’s 0.1% decrease. The fall in production was attributed to a decline in activity in the motor vehicle and electronics sectors. The poor economic releases over the week was compounded by retail sales falling by 2.3% in January from the 0.9% increase recorded in December and below forecasts of a 0.8% dip. Japan’s labour market weakened as the jobless rate for January inched slightly higher to 2.5%, against forecasts of it remaining at 2.4%. However, the job-to-applicant ratio remained unchanged at 1.63. 
  • In China, manufacturing sector contracted for the third consecutive month. The official Chinese manufacturing PMI for February inched lower to 49.2 from 49.5. Although moving 1.6-points higher to 49.9, the Caixin manufacturing PMI, which focuses on small and mid-sized Chinese business, remained (albeit marginally) in contractionary territory. The official non-manufacturing index underperformed expectations and slipped to 54.3 from 54.7 over the month.

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

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