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Aon Retirement and Investment Blog

Weekly Update - 01 February 2016 (North America)


MARKET MOVES (as of January 29, 2016)
  • Global equities rose over the week as markets rallied sharply on Friday, driven by a surprise move by the Bank of Japan to adopt a negative interest rate policy. The MSCI World Index rose 1.7% over the week marginally underperforming the S&P 500 which rose 1.8%. On a year to date basis MSCI World Index has underperformed S&P 500 (-6.0% vs. –5.0%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose 1.8% over the week compared to 1.5% rise by Russell 2000. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (-5.0% vs. -8.8%). Growth stocks underperformed the Value stocks last week (0.7% vs. 2.7%) as measured by MSCI USA indices. Growth stocks have underperformed Value stocks, returning (-6.3% vs. -4.3%) on a year to date basis. 
  • 10 year US Treasury yields fell by 13 bps to 1.92% over the week and 30 year US Treasury yields finished the week 8 bps lower at 2.74%.
  • 20 year TIPS yield fell by 14 bps at 0.83% over the week. 20 year Breakeven were 4 bps higher at 1.35%.
  • Credit spreads mixed  over the week. The Barclays Capital Long Credit Index spread over treasury yields rose by 6 bps to 252 bps and the Merrill Lynch US Corporate Index spread ended the week 6 bps higher at 202 bps. The US high yield bond spread over US treasury yields was 13bps lower at 774bps and the spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 463bps. 
  • The S&P GSCI rose by 3.6% in USD terms over the week. The energy sector rose by 6.5% as the price of WTI crude oil rose 5.0% to USD 34/BBL amid speculation of an OPEC production cut. Industrial metals prices rose by 2.9% over the week as copper prices increased by 2.7% to $4,570/MT. Agricultural prices were 0.8% lower, while gold prices rose by 1.5%, finishing the week at $1,117/ounce. 
  • The US dollar appreciated against the yen and the sterling, but was broadly unchanged against the Euro. The US dollar rose 1.0% against sterling finishing the week at $1.42/£. The US dollar was broadly unchanged against the euro at $1.08/€. The Japanese yen depreciated by 2.1% against the US dollar at ¥121.07/$, driven by the accommodative policy of the Bank of Japan. 
  • US GDP grew at a disappointingly sluggish rate of 0.7% (on a quarter-on-quarter annualized basis) over Q4. Though this low number was largely expected, they are in stark contrast with the previous two quarters’ growth figures of 2% and 3.9% respectively. Durable goods orders fell by 5.1% in December according to the preliminary estimate, mostly due to poor transportation orders. However, capital goods also disappointed, with orders falling by 4.3% against a 0.2% expected contraction. The preliminary services PMI for January fell to 53.7, lower than consensus, but still well clear of the neutral 50 mark. However, on a brighter note, consumer confidence rose to 98.1 in January, firmly beating both the consensus estimate (96.5) and December’s number (96.3).
  • In Europe, initial inflation figures were released for January. Headline CPI inflation has moved up to 0.4% from 0.2% in line with expectations. The ‘core’ CPI estimate (which excludes fuel and food prices) crept up to 1.0% from 0.9%. However, the economic confidence indicator fell from 106.7 to 105.0, the lowest level since August. Alongside this, the European Commission business climate indicator disappointed as it fell when it was expected to remain broadly flat. Consumer confidence, which was also anticipated to remain flat in January, reported in line with expectations, a situation mirrored in Germany. German retail sales disappointed in December, with annual sales growing by 1.5%, down from 2.4% in November.
  • Japanese economic data had a weak tone over the week. Exports fell further in December at an annual rate of 8.0%, behind economist estimates of 7.0% fall as the Chinese slowdown had a negative impact. However, the adjusted trade balance recorded a surplus of ¥37bn in December from a surplus of ¥22bn. Japanese CPI inflation slowed to 0.2% over the year to December from 0.3% in November, but met consensus. The “Core-Core” measure which excludes food and energy also slowed over the same period to 0.8% from 0.9%. Consumption data was weak; overall household spending fell by 4.4% over the twelve months to December and retail trade fell by 1.1% over the same period. The Japanese jobless rate remained unchanged at 3.3% in December, but the job to applicant ratio indicated labor market tightening by rising to a 24-year high of 1.27 in December from 1.25. Industrial production over the year to December fell by 1.6%, as the monthly growth figure for December disappointed at -1.4%.
  • China’s Caixin manufacturing PMI came in above expectations, rising to 48.4 (versus 48.1 expected). On the other hand, the official PMI slightly disappointed. Industrial profits fell by 4.7% over 2015, a sharper contraction than the year-on-year 1.4% fall during the year to November.
Source: Aon Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions. 

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