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Aon Retirement and Investment Blog

Weekly Update - 11 April 2016


  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version of the March 24th edition is also now available.
  • 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 World Index fell 0.4% over the week but outperformed the S&P 500 which fell by 1.2%.However, on a year to date basis, S&P 500 has outperformed MSCI World (0.8% vs. -1.1%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.8% over the week compared to 1.2% fall by S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (0.8% vs. -3.0%). Growth stocks outperformed the Value stocks last week (-1.0% vs. -1.2%) as measured by MSCI USA indices. However, Value stocks have outperformed Growth stocks, returning (1.2% vs. -0.3%) on a year to date basis.  
  • 10 year US Treasury yields and 30 year US Treasury yields both fell by 5 bps and ended the week at 1.72% and 2.55% respectively; the dovish outlook by the US Federal Reserve in March FOMC meeting minutes dictated the direction of yields.
  • 20 year TIPS yields fell by 2bps to 0.42% over the week. 20 year Breakeven were 4bps down at 1.49%.
  • Credit spreads were mixed over the week. The Barclays Capital Long Credit Index spread over treasury yields was unchanged at 224bps and the Merrill Lynch US Corporate Index spread ended the week 1bps higher at 170bps. 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 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. 
  • The US dollar appreciated against the sterling but depreciated against the euro and the yen. The US dollar rose 0.6% against sterling, ending the week at $1.41/£. The US dollar weakened 0.6% against the euro finishing the week at $1.14/€. The Japanese yen appreciated against the US dollar by 3.7%, touching a 17 month high; ending the week at ¥108.42/$, as investors continued to test Bank of Japan's resolve to stimulate the economy.
Economic Releases
  • In a fairly quiet week for US economic data, the labor 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.
  • 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. Labor market data was strong as labor 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.

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

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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