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Aon Retirement and Investment Blog

Weekly Update - 18 April 2016 (UK/Europe)


  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health.
  • 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 AC World Index rose 2.6% in local currency terms and returned 2.0% in sterling terms. Japan was the best performing market in both local currency (5.9%) and sterling terms (5.1%) as a reversal of recent yen strength benefited exporters’ shares. The USA was the worst performing market in both local currency and sterling terms, returning 1.6% and 1.1% respectively.
  • UK nominal gilt yields rose across all maturities, in a week where the Bank of England (BoE) kept its interest rates unchanged, as anticipated, but UK inflation releases were stronger than anticipated. The 10 year UK gilt yield rose by 5bps to 1.42% and the 20 year UK gilt yield rose by 4bps to 2.14%. The 10 year US treasury yield rose by 3bps, finishing the week at 1.75%. European government bonds yields were mixed across the region. Both the German bund and French government bond yields rose by 3bps to finish the week at 0.13% and 0.40% respectively, whereas Portuguese and Spanish government bond yields fell as investors moved into higher yielding regions as part of the pickup in risk appetite.
  • UK real yields rose over the week. The 20 year real yield rose by 3bps to finish the week at -0.91% and the Over 5 year real yield rose by 4bps to finish the week at -0.94%. 20 year breakeven inflation rose by 1bp to 2.98%.
  • Credit spreads fell over the week. 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. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 2bps at 147bps.
  • 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 Brent crude oil rose by 2.0% 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.
  • Sterling appreciated against the major currencies over the week on the back of the aforementioned inflation data. The US dollar depreciated by 0.5% against sterling, ending the week at $1.42/£. The euro fell by 1.5% against sterling, finishing the week at €1.25/£. The Japanese yen depreciated against the US dollar by 0.3%, ending the week at ¥108.74/$.


  • 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 pencilled 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 any time soon, which should keep interest rates relatively low.
  • In the United Kingdom, inflation figures for March were released during the week and were encouraging. Headline inflation was at 0.5% for the 12 months, up from 0.3% the previous month and marginally ahead of expectations. Core inflation, which excludes energy, tobacco and alcohol, unexpectedly picked up from 1.2% to 1.5%. Core inflation is at a level last seen in October 2014. Retail sales were also released but disappointed; BRC annual like-for-like sales fell 0.7% to March, when analysts predicted they would grow 2.0%..
  • 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 clamour 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%).

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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