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Aon Retirement and Investment Blog

Weekly Update - 18 April 2016

NEW INTELLECTUAL CAPITAL

  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. French versions of the April 7th and March 31st issues are also now available. 
MARKET MOVES (week ending April 15, 2016)
Equities
  • Global equities rose over the week on the back of better than expected Chinese trade data, rising commodity prices and as quarterly corporate earnings reports were better than analysts’ forecasts. The MSCI World Index rose 2.4% over the week and outperformed the S&P 500 which rose by 1.6%.However, on a year to date basis, S&P 500 has outperformed MSCI World (2.5% vs. 1.3%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 3.1% over the week compared to 1.6% rise by S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (2.5% vs. 0.0%). Value stocks outperformed the Growth stocks last week (1.7% vs. 1.6%) as measured by MSCI USA indices. However, Value stocks have outperformed Growth stocks, returning (3.0% vs. 1.3%) on a year to date basis. 
Bonds
  • 10 year US Treasury yields rose by 3bps and 30 year US Treasury yields rose by 1bp, ending the week at 1.75% and 2.56% respectively.
  • 20 year TIPS yields rose by 6bps to 0.48% over the week. 20 year Breakeven were 3bps down at 1.46%.
  • Credit spreads fell over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 7bps at 217bps and the Merrill Lynch US Corporate Index spread ended the week 6bps lower at 164bps. The US high yield bond spread over US treasury yields was 41bps lower at 662bps and the spread of USD denominated EM debt over US treasury yields finished the week 20bps lower at 395bps. 
Commodities
  • The S&P GSCI Index rose by 1.5% in USD terms over the week. The energy sector rose by 1.6% as the price of WTI crude oil rose by 1.7% as the talks for output freeze gained momentum ahead of the weekend's summit of oil producing nations in Doha. Brent Crude oil finished the week at $43/BBL, while WTI was at $40/BBL. Industrial metals rose by 3.3% over the week as copper prices increased by 3.5% to $4,828/MT. Agricultural prices were 2.5% higher while gold prices fell by 0.9%, finishing the week at $1,230/ounce. 
Currencies
  • The US dollar appreciated against the euro and the yen but depreciated against the sterling. The US dollar fell 0.5% against sterling, ending the week at $1.42/£. The US dollar strengthened 1.0% against the euro finishing the week at $1.13/€. The Japanese yen depreciated against the US dollar by 0.3%, ending the week at ¥108.74/$.
ECONOMIC RELEASES
  • US economic data was fairly soft over the week. CPI inflation fell to 0.9% in March from 1.0% as ‘core’ inflation, which excludes the impact of volatile energy and food prices, also fell from 2.3% to 2.2%. Both were expected by analysts to remain unchanged. Industrial production fell by 0.6% over March, a larger fall than anticipated, as manufacturing activity also disappointed by unexpectedly shrinking over the same period. The University of Michigan consumer sentiment index fell from 91.0 to 89.7 when a rise was expected, marking the fourth consecutive monthly fall. Advance data for retail sales growth was disappointing, suggesting that retail sales fell by 0.3% over March, when analysts had penciled in a small rise. However, after removing the deflationary impact of the auto and gas sector, retail sales actually seem to have risen marginally. Import prices fell by 6.2% over the year to March, more than expected, even though the US dollar had weakened over the first quarter of 2016. The recent dataflow implies that the Fed is unlikely to become hawkish in terms of monetary policy anytime soon, which should keep interest rates relatively low.
  • In a light week of releases, inflation figures were also released in the Eurozone. Annual CPI was flat at 0.0%, however, this was slightly better than the anticipated -0.1% rate. Core inflation remained at 1.0%, in line with expectations. German inflation remained stable, with headline inflation growing at 0.3% year on year. Eurozone industrial production was weak, with growth of 0.8% over the 12 months to February, down from 2.9% the previous month and smaller than the expected 1.3% growth.
  • Japanese economic data had a weak tone over the week. Machine orders sharply fell by 9.2% in February, which brought the yearly pace of growth down to -0.7%, with the fall largely driven by the weak manufacturing sector. Producer price inflation remained negative for the 12th month in a row, at -3.8% over the twelve months to March, a sharper contraction than expected. Final industrial production data for February showed a contraction of 5.2%, below the preliminary fall estimate of 6.2%, which brought the yearly fall to -1.2%. Overall, the clamor for extra monetary and fiscal stimulus has grown but the central bank and government remain divided on the issue at the moment.
  • In a busy week for Chinese economic data, first quarter GDP was revealed to have grown 6.7% on a year ago, in line with expectations, and only a small step down from the previous quarter’s 6.8% yearly growth rate. However, the quarter-on-quarter growth figure was disappointing, falling to 1.1% against a consensus expectation of 1.5%. Industrial production beat expectations in March, with the annual growth rate of 6.8% coming in above the consensus estimate of 5.9%. Retail sales also beat expectations over the same period, but the margin was smaller, with growth at 10.5% and 10.4% expected. Lastly, foreign direct investment rose by 7.8% in over the twelve months to March, substantially higher than both February’s reading (1.8%) and the consensus (2.4%).
 Source: 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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