The weekly update for 10/14/2013 includes a listing of the new pieces of intellectual capital that HEK released the prior week, upcoming events, commentary on market experience over the prior week, and a discussion of economic releases during the upcoming week.
Effective November 4, HEK’s Chicago office will be moving to:Aon Center 200 E. Randolph St. Suite 1500 Chicago, IL 60601 (312) 381-1200
NEW PIECES OF INTELLECTUAL CAPITAL RELEASED:
- Annuity Pricing Update at 9/30/2013. Monthly update for pricing of annuity purchases.
- HEK Monthly Call. October 16 at 10:00-11:00am Central Time will be our next monthly conference call with clients, when we will discuss market trends and our latest thought leadership. Click here for a more details and registration information.
WEEK IN MARKETS
Week Ending October 11, 2013
- The US government shutdown continued throughout the week and despite talks, there remained no resolution to the debt ceiling negotiations. Markets didn’t panic and after some losses early on in the week, equities rallied on expectations that an agreement would be reached. However, talks broke down over the weekend. The minutes from the September Fed monetary policy meeting failed to clarify the view on tapering – members were evenly split between those who do not believe that the economy is strong enough to warrant tapering yet and those who worried about the credibility impact of delaying. Meanwhile, Vice-Chair of the rate setting committee, Janet Yellen, was nominated to replace Chairman Bernanke in early 2014. Her dovish views on the economy provided a small boost to equity markets. The S&P 500 outperformed the MSCI World Index with a return of 0.8% against 0.7%. Year-to-date, the S&P 500 has outperformed the MSCI World Index (21.4% vs. 18.9%).
- Small cap returns were slightly lower than those for large cap stocks as the Russell 2000 returned +0.6% over the week. Year-to-date, small cap has outperformed large cap with a 29.0% return. Value stocks outperformed growth stocks (1.2% vs. 0.3%) over the week as measured by the MSCI USA indices. Year-to-date value stocks outperformed growth stocks (22.3% and 21.2% respectively).
- Changes in safe haven demand caused bond yields to fluctuate over the week but they ended the week slightly higher. 10 and 30 year treasury yields rose by 4 bps to 2.69% and 3 bps to 3.75% respectively. 10 year German yields increased by 4 bps to 1.87%.
- 20 year TIPS yields increased by 6 bps to 1.05% over the week. 20 year breakevens declined by 2 bps to 2.29%.
- The Merrill Lynch US Corporate Index spread and the Barclays Capital Long Credit Index spread over treasury yields both decreased by 4 bps to 150 bps and 183 bps respectively. US high yield bond spreads over Treasuries narrowed by 8 bps to 462 bps while the Emerging Market ($) bond spread over Treasuries fell 12 bps to 337 bps.
- Commodity prices were up by 0.3% in US dollar terms over the week. The Energy sector returned 0.6% with the price of Brent crude oil increasing 1.0% to $111/BBL. Industrial Metals were up 0.4% but the copper price fell by 0.8% to $7,177/MT on concerns over global growth. Agriculture prices were down 0.6% over the week. Gold dropped 3.3% to end the week at $1,268/ounce as expectations of a deal being reached in the US reduced safe haven demand.
- The US dollar appreciated against the euro, sterling and yen by 0.2% to $1.36/?, 1.1% to ¥98.31/$ and 0.8% to $1.59/£.
- As the US Federal government shutdown entered its second week, the economic data began to reveal the impact. Initial jobless claims jumped to the highest level in 6 months, with 374,000 new applicants reported, up from 308,000. Almost half of the rise was attributed to government workers put on temporary leave as a result of the shutdown. Meanwhile, the University of Michigan’s widely followed consumer sentiment index fell to a 9 month low of 75.2 (previous 77.5) as households’ moods darkened. Consumer credit data for August reported another increase to $13.6bn due to rising automobile and student loans.
- In Europe, aggregate data was sparse on the ground last week but German data continued to point to a strengthening recovery. German industrial production rose by 1.4% on the month in August, continuing the upward trend of the past few months, whilst CPI inflation remained contained at 1.4%, well below the rate at which the European Central Bank will begin to worry.
- The Japanese Economy Watchers Survey Outlook Index rose from 51.2 in August to 54.2 in September, defying market consensus of a fall. Machine Orders for August picked up significantly, with a 5.4% month-on-month rise (up from 0.0% in July), making a 10.3% year-on-year rise. The Consumer Confidence Index for September also beat market expectations, rising from 43.0 in July to 45.4, against a market consensus of 43.5. Japan’s Leading Index fell in August from 107.9 to 106.5, whilst the Coincident Index fell by -0.09%. The adjusted Current Account Balance rose from ¥334bn in July to ¥352bn in August, failing to meet market expectations of a rise to ¥634B.
- Finally, in China, the HSBC/Markit Services PMI followed its manufacturing counterpart lower and was reported at 52.4, down from 52.8 in August. Meanwhile, the September trade balance fell unexpectedly to $15.21bn from $28.52bn (the consensus was looking for $26.25bn). Within the detail, exports contracted by 0.3% (from 7.2% in the previous month) while imports growth accelerated to 7.4% from 7%. Some of the decline in the trade balance is attributable to seasonal adjustment factors and the timing of public holidays this time last year.
Source: Hewitt EnnissKnupp