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Aon Retirement and Investment Blog

Weekly Update - 15 December 2014 (Canada)


  • Radar.  A summary of regulatory and industry events in Canada affecting talent, retirement, and health for the two weeks ending December 4. For the English version click here.  For the French version, click here.
  • New Ontario Pension Regulations - 2014 Recap. This information bulletin from Canada summarizes significant legislative and regulatory activity in Ontario related to registered pension plans in 2014. The English version is available here; the French version is available here.
  • Discount Rate Update at 11/30/2014. Monthly update for accounting discount rates for private defined benefit plans. The average plan sponsor's discount rate hovered around 4.3% at the end of November; 71 basis points lower than at the end of 2013.
  • December Investment Strategy On Demand Webinar.  We shared a variety of current thought leadership from across the firm. Topics covered included opportunities in deep value investments, liquidity analysis, multi-asset credit, final regulations on Qualifying Longevity Annuity Contracts (QLACs), changes in the SOA Mortality tables, and implementing White Label Funds. 


  • Global equity markets sold off heavily over the week, recording the worst weekly drop in over 3 years as investors worried that the recent sharp fall in oil prices may not be caused just by oversupply, but that demand could be weaker than previously anticipated. In the detail, the S&P 500 index slightly outperformed the MSCI World index last week (-3.5% vs. -3.6%). In 2014 to date, the S&P 500 has markedly outperformed the MSCI World index with a 10.5% return vs. a 3.3% return.
  • US small cap stocks outperformed large cap stocks as the Russell 2000 returned -2.5% over the week. Year-to-date, small cap has significantly underperformed large cap with a 0.2% return. Growth stocks outperformed value stocks last week (-3.1% vs. -3.9%) as measured by the MSCI USA indices. In 2014 to date, growth stocks have outperformed value stocks (11.4% vs. 8.8%). 
  • 30 year and 10 year US yields were down 23 bps to 2.74% and 22 bps to 2.08% respectively last week.
  • 20 year TIPS yields moved 15 bps lower to 0.68% over the week. 20 year breakevens were 10 bps lower at 1.66%.
  • The Barclays Capital Long Credit Index spread over Treasury yields increased by 11 bps to 189 bps while the Merrill Lynch US Corporate Index spread was up 8 bps to 145 bps over the week. US high yield bond spreads over Treasuries rose by 70 bps to 547 bps. The Emerging Market ($) bond spread over Treasuries rose by 67 bps to 383 bps. 
  • The S&P GSCI Commodity Index fell by 6.2% in USD terms over the week, led by a continued sharp decline in crude oil prices. The Energy sector was down by 9.7% as the price of Brent crude oil fell by 9.5% to $62/BBL, the lowest since July 2009. Industrial Metals were 1.0% lower over the week but the copper price rose 0.4% to $6,542/MT. Agricultural prices were up by 1.2%. Gold was 2.3% higher over the week at $1,223/ounce. 
  • The US dollar depreciated by 0.7% against sterling and by 2.2% against the yen, ending the week at $1.57/£ and ¥118.55/$ respectively. The dollar decreased by 1.3% against the euro, finishing the week at $1.25/€. The euro is now 9.6% lower and the yen 11.4% lower year-to-date against the US dollar as Eurozone and Japanese macroeconomic and monetary policy differences with the US have driven exchange rates. 
  • The tone of the US data last week was generally positive, with improvements in consumer spending and confidence. Retail sales rose by a better than expected 0.7% in the month of November while the previous month's data was revised up to show a 0.5% increase.  This confounded rumors that the traditional Thanksgiving shopping period was weaker than in previous years. Meanwhile, the University of Michigan survey of consumer sentiment revealed a preliminary December estimate of 93.8, which was a 5 point increase and greatly exceeded market expectations of an increase to 89.5. Whilst the relationship is not completely one-for-one, this survey usually provides a good early steer on the much more widely watched consumer confidence survey. The latest increase probably reflects the continued improvement in the labor market as well as much cheaper fuel prices. The latter also partially affected the producer price inflation data for November, whose broadest measure fell by 0.2% on the month (consensus was -0.1%), translating to a year-on-year rate of 1.4%, which is the lowest since March.
  • In Europe, October's industrial production report was also slightly disappointing – output grew at only 0.1% following a 0.5% rate in September, while the market was looking for a 0.2% increase. The annual rate ticked a 0.1% higher to 0.7% but this still means that the industrial sector has not grown meaningfully since 2011. In Germany, the pattern was similar, with industrial production slowing from 1.1% to 0.2% in October, versus expectations of a 0.4% rise. Coupled with recent comments from the ECB, the path towards sovereign quantitative easing still remains open.
  • Japanese economic data was disappointing on the whole. The November economy watchers survey current conditions (41.5 actual versus 45.8 expected) and outlook (44.0 actual versus 47.0 expected) components both reached their lowest levels since before April’s sales tax hike. Consumer confidence also took another hit, slumping to 37.7 in November from 38.9 in October, against expectations of a small recovery to 39.5. However, the fourth quarter tankan survey was more mixed. The large non-manufacturing sector still looks healthy, as both the index and outlook components were safely positive, increasing from Q3 and beating expectations. In contrast, the outlook component for large manufacturers disappointed (9 actual versus 13 expected). In the small cap space, the outlook components were disappointing for the manufacturing (-5) and non-manufacturing (-4) sectors given expectations of -2 for both. The snap election results put Shinzo Abe back into power but markets are likely to need a clear reform timetable and possibly more QE from the Bank of Japan to be reassured.
  • Finally, in China, consumer price inflation slowed somewhat to 1.4% from 1.6% in November when the market was expecting an unchanged figure. Industrial production growth also slowed a little to 7.2% in November from 7.7% - again the market was looking for no change. On the other hand, retail sales grew at 11.7%, which was faster than both the previous month and the consensus reading of 11.5%. Overall, however, there are few signs of a return to strong growth in the near term.
The information contained above is intended for general information purposes only and 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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