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Aon Retirement and Investment Blog

Weekly Update - 11 April 2016 (UK/Europe)


  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. 


  • Global equities ended lower in a volatile week despite rising commodity prices. Risk aversion increased among investors led by weak economic data and two major central banks' meeting minutes, highlighting global growth concerns. The MSCI AC World Index fell 0.8% in local currency terms but returned 0.1% in sterling terms due to a weakening sterling. The UK was the best performing market in local currency terms (1.1%) led by pharmaceutical stocks after the fallout from the failed Pfizer-Allergan deal. Japan was the best performing market in sterling terms (3.1%) as a stronger yen pushed up returns for UK investors. The USA was the worst performing market in local currency terms (-1.1%). Developed Asia Pacific ex Japan was the worst performing region in sterling terms (-0.7%).
  • UK nominal gilt yields fell across all maturities in tandem with other developed government bond yields. The 10 year and the 20 year UK gilt yield fell by 5bps to 1.37% and 2.10% respectively. The 10 year US treasury yield fell by 7bps, finishing the week at 1.72%; the dovish outlook by the US Federal Reserve in March FOMC meeting minutes dictating the direction of yields. European government bonds yields were mixed across the region. German bund yields fell by 5bps to finish the week at 0.10% (close to 2015 all-time lows) and French government bond yields fell by 2bps to finish the week at 0.37%. Peripheral government bond yields rose as political tensions grew in the European Union.
  • UK real yields fell over the week. The 20 year and the Over 5 year real yield both fell by 2bps to finish the week at -0.94% and -0.98% respectively. 20 year breakeven inflation fell by 2bps to 2.97%.
  • Credit spreads were mixed over the week. The US high yield bond spread over US treasury yields was 2bps lower at 703bps and the spread of USD denominated EM debt over US treasury yields finished the week 9bps higher at 415bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 2bps at 149bps.
  • The S&P GSCI Index rose by 3.5% in USD terms over the week. The energy sector rose by 7.0% as the price of Brent crude oil rose by 0.5% and WTI crude oil rose by 8.0%, narrowing the Brent/WTI Spread. Brent and WTI finished the week at USD 39/BBL and USD 40/BBL respectively. Prices rose due to a decline in crude stockpiles according to the US EIA inventory data and on the hopes of an output freeze at the next OPEC meeting. Industrial metals fell by 2.7% over the week as copper prices declined by 4.0% to $4,664/MT. Agricultural prices were 0.9% lower while gold prices rose by 2.4%, finishing the week at $1,242/ounce.
  • Sterling weakened against the major currencies over the week. The US dollar appreciated by 0.6% against sterling, ending the week at $1.41/£. The euro rose by 1.1% against sterling, finishing the week at €1.24/£. The Japanese yen appreciated against the US dollar by 3.7%, touching a 17 month high; ending the week at ¥108.42/$, as investors continued to test Bank of Japan's resolve to stimulate the economy. 


  • In a fairly quiet week for US economic data, the labour market conditions index for March fell by 2.1, which was disappointing relative to the expected rise of 1.5. The trade deficit rose to $47.1bn in February when a smaller rise was expected as US exports to China fell to their lowest level since mid-2011. The IBD/TIPP Economic Optimism index for April also disappointed versus consensus, falling to 46.3 when a small rise to 47.0 was expected. Lastly, factory orders fell by 1.7% as expected in February.
  • In the UK, the Markit services purchasing managers’ index (PMI) number for March was released, rising from 52.7 to 53.7, outperforming expectations. However, the average reading over Q1 2016 was the weakest for any quarter since the start of 2013, and the number remains below its long term average (55.2). The rise in services led the composite PMI to rise from 52.7 to 53.6, while construction remained flat. Industrial production fell 0.5% over the 12 months to February, disappointing analysts who had not expect a contraction. Manufacturing production was similarly disappointing over the same time period, falling 1.8%, a greater drop than economists had predicted (-0.7%). However, given the low significance of manufacturing to the UK economy, the National Institute of Economic and Social Research GDP estimate still improved slightly to 0.3% over the three months to March.
  • The final Markit services PMI number was also released in the Eurozone. The index was revised down from preliminary estimates of 54.0 to 53.1, down from 53.3 in February. The composite subsequently was revised from 53.7 to 53.1, showing a marginal increase from February when the reading was 53.0. The composite PMI was more resilient in Germany. The final number was revised down from 54.1 to 54.0 in March. The Sentix investor confidence index rose from 5.5 to 5.7, but analysts were expecting a greater rise to 7.0.
  • Japanese economic data was mostly encouraging over the last week. Labour market data was strong as labour cash earnings grew by 0.9% over the twelve months to February, the highest reading in seven months and more than the consensus estimate of 0.2%. Real wages rose by 0.4% over the same period, up from the revised 0% for January. The adjusted current account surplus for February was stronger than expected at ¥1734bn (ahead of the consensus estimate of ¥1572bn) as the trade deficit returned to a surplus (of ¥425bn) due to cheap energy imports. Upbeat consumer confidence for March (41.7 from 40.1 in February) wasn’t mirrored by the economy watchers survey, whose outlook component fell to 46.7 from 48.2 in March, lower than the consensus estimates of 48.3. However, the current conditions component rose to 45.4 from 44.6 over the same period. The services PMI fell to 50.0 in March from 51.2 in February, which pushed the composite PMI down to 49.9, the first contractionary reading this year.
  • In China, the Caixin services PMI rose to 52.2 from 51.2 in March, bringing the composite index above the neutral 50 mark to 51.3.

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs.Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case, nor should it be treated as investment advice. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal or investment advice. Please consult with your independent professional for any such advice. The blog content is intended for professional investors only.

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