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Aon Retirement and Investment Blog

Weekly Update - 8 December 2014 (UK/Europe)


  • Radar.  A summary of regulatory and industry events in Canada affecting talent, retirement, and health for the two weeks ending November 27, 2014. 
  • Medium-Term View Update.  Includes Aon Hewitt’s  views across asset classes.  Please contact us directly through your consultant or hek.marketing@aonhewitt.com if you’d like to receive this document.
  • December Investment Strategy Webinar.  Please join us on December 10th at 10AM CT to discuss recent research. Sign up for the webinar here


  • Global equity markets were mostly higher over the week as investors weighed up the prospect of further policy easing from the European Central Bank early next year, a strong US non-farm payrolls report on Friday and recent oil price falls giving a boost to consumer spending. The MSCI AC World Index returned 0.2% in sterling terms. Japan was the best performing region in local currency terms (+2.5%) as investors continued to react to stimulus measures despite recent weak economic data, whereas the US was the best performer in sterling terms (+0.8%) as the US dollar continued to strengthen following the jobs report. The worst performer in both local (-0.9%) and sterling (-1.4%) terms was emerging markets, as commodity price weakness affected a number of countries including Russia and Brazil.
  • Investors began to price in a slightly earlier rise in policy rates given the strong economic data. UK government bond yields were higher at all maturities. The 10 year UK gilt yield was 9 bps higher at 2.02% whilst the 20 year gilt yield rose by 7 bps to 2.56%. The 10 year US Treasury yield rose by 11 bps to 2.31%.
  • UK real yields were broadly unchanged over the week. The UK 20 year real yield remained at -0.66% and the Over 5 year real yield fell by 2 bps to -0.69%. 20 year breakeven inflation was 7 bps higher to finish the week at 3.22%.
  • Credit spreads were generally wider over the week. However, the sterling non-gilt spread over government yields (based on the Merrill Lynch index) was 1 bp lower at 119 bps. US high yield bond spreads over Treasuries rose by 13 bps to 477 bps. The Emerging Market ($) bond spread over Treasuries rose by 6 bps to 316 bps.
  • The S&P GSCI Commodity Index fell by 1.4% in USD terms over the week, as crude oil continued to decline. The Energy sector was down by 2.2% as the price of Brent crude oil fell by 4.6% to $69/BBL. Industrial Metals were 0.5% higher over the week with the copper price rising to $6,515/MT. Agricultural prices were up by 0.8%. Gold was 1.1% higher over the week at $1,195/ounce.
  • Currency returns were mixed over the week. The US dollar appreciated by 0.4% over the week versus sterling, ending the week at $1.56/£ and the euro finished the week 0.9% higher at €1.27/£. The Japanese yen continued to slide against the US dollar depreciating by 2.2% to ¥121.42/$.

  • The US employment report was much stronger than expected with a 321,000 gain in non-farm payrolls in November and a 44,000 upward revision to the two earlier months. A November gain of 230,000 had been expected by the consensus.  There was also some pick up in wage growth with average hourly earnings increasing by 0.4% over the month, compared to 0.2% expected. Earnings have now risen by 2.1% over the last year. The unemployment rate remained unchanged at 5.8%. The ISM survey data was another strong release last week. The manufacturing index was 58.7, down just a little from October’s three-year high of 59.0 and the ISM Non-manufacturing index rose to 59.3. However, Markit's Purchasing Managers’ Index (PMI), which also surveys companies for their outlook, was a little less strong with the final composite number dipping to 56.1 in November from 57.2 in October.
  • The UK composite PMI rose strongly to 57.6 in November from October’s 55.8. Both the manufacturing and services sectors expanded faster than expected, although construction PMI missed expectations, falling from October’s levels. In total, the survey results provide reassurance that the UK’s economic recovery remains robust. Lower oil prices and house prices, which continue to rise (0.4% up in November), have been supportive.
  • In the Eurozone, November’s final composite PMI sank to 51.1 from October's 52.1, worst than the preliminary reading of 51.4. Manufacturing slipped to 50.1, indicating that the economy is barely expanding. Services also fell (51.1) and the retail sector increased to 48.9.  Germany’s composite PMI is down at 51.7 with the manufacturing PMI falling below 50 in November (49.5), indicating that the manufacturing sector is now contracting.  The ECB didn’t announce further monetary easing in its meeting last week but the PMI data supports expectations that there will be more easing in the New Year, especially as the European Commission lowered its Eurozone growth forecasts last week to 0.8% this year and 1.1% in 2015, down from 1.2% and 1.7%.
  • Japanese economic data was rather mixed. After the news that Q3 GDP had shrunk for the second consecutive quarter, implying a technical recession for the economy, finalised numbers show an even deeper contraction.  On an annualised basis, Q3 growth fell by 1.9% quarter-on-quarter, lower than the first calculated 1.6% contraction. Labour cash earnings rose by 0.5% over the twelve months to October, failing to meet analyst expectations of a 0.8% increase and below consumer price inflation.  More promising data releases were October’s adjusted current account which posted a surplus (¥947B) twice as large as expected (¥455B) and November’s services and composite PMIs. Both these PMIs rose above 50, with a 50.6 and 51.2 level respectively, after dipping below 50 in October.
  • HSBC China Composite PMI fell to 51.1, down from 51.7 in October.  The manufacturing PMI is now down at the key 50.0 although the services sector is stronger at a PMI level of 53.0, marginally up from 52.9 in October.

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