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Aon Retirement and Investment Blog

Weekly Update - 15 February 2016

NEW INTELLECTUAL CAPITAL

  • US Retirement Legal Consulting & Compliance Quarterly Update. The US practice is pleased to present its quarterly update of recent legal developments and consulting opportunities for the first quarter of 2016.
  • Discount Rate Update.  Average discount rates fell during January as equity markets fell around the globe and investors sought out safety assets. The average plan sponsor’s discount rate decreased 4 basis points in January, to 4.52%. Even more notable was the steepening of the yield curve which led to a wide distribution of discount rate movements depending on the duration of the plan. In early February, rates have decreased by 13 basis points through Tuesday February 9, 2016.
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. French versions of the January 28 and January 21 issues of Radar are also now available. 
MARKET MOVES (as of February 12, 2016)
Equities
  • Global equities fell sharply over a week during which most Asian markets were closed due to the Lunar New year holiday period. The broad stock market sell-off was prompted by falling banking stocks, which suffered as investors worried about the impact on their profitability of negative interest rates, but falling crude oil prices also contributed.
  • The MSCI World Index fell 2.4% over the week underperforming the S&P 500 which fell 0.7%. On a year to date basis, MSCI World Index has underperformed S&P 500 (-10.4% vs. -8.5%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.3% over the week compared to 0.7% fall by S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (-8.5% vs. -14.3%). Growth stocks outperformed the Value stocks last week (-0.6% vs. -1.0%) as measured by MSCI USA indices. Growth stocks have underperformed Value stocks, returning (-10.7% vs. -7.3%) on a year to date basis. 
Bonds
  • 10 year US Treasury yields fell by 9bps to 1.75% over the week and 30 year US Treasury yields finished the week 7bps lower at 2.60%.
  • 20 year TIPS yield were unchanged at 0.78% over the week. 20 year Breakeven were 10bps lower at 1.20%.
  • Credit spreads rose over the week due to investors’ risk aversion. The Barclays Capital Long Credit Index spread over treasury yields rose by 13bps to 273bps and the Merrill Lynch US Corporate Index spread ended the week 11bps higher at 220bps. The US high yield bond spread over US treasury yields was 54bps higher at 864bps. The spread of USD denominated EM debt over US treasury yields finished the week 20bps higher at 493bps. 
Commodities
  • The S&P GSCI Index fell by 1.3% in USD terms over the week. The energy sector fell by 2.1% as the price of WTI crude oil fell by 5.0% to finish the week at $29/BBL. Industrial metals prices fell by 0.9% over the week as copper prices decreased by 2.7% to $4,507/MT. Agricultural prices were 1.4% lower while gold prices rose by 6.9% to $1,234/ounce after reaching a 12-month high in the middle of the week. 
Currencies
  • The US dollar depreciated against euro and yen but appreciated against sterling. The US dollar rose 0.2% against sterling finishing the week at $1.45/£. The US dollar weakened against the euro by 0.9% at $1.12/€. The Japanese yen appreciated by 3.8% against the US dollar at ¥112.75/$.
ECONOMIC RELEASES
  • In a relatively light week for US economic data, retail sales growth was slow, at 0.2% over January, but it marginally beat expectations and the previous month was also revised upwards. The growth rate excluding auto and gas was better, at 0.4% over the month. The University of Michigan Consumer Sentiment fell in February for the second month in a row, to 90.7 when analysts had hoped for a small rise to 92.3. The NFIB small business optimism index also fell - to 93.9 from 95.2 in January, its lowest level since early 2014. Finally, import prices fell by 6.2% over the twelve months to January as the strong US dollar continued to make an impact.
  • Eurozone GDP rose by 0.3% in Q4 on a seasonally adjusted basis, the same pace as in Q3, resulting in a year-on-year growth of 1.5%, which was expected. German GDP rose by 1.3% year-on-year in Q4. Industrial production was weak, falling by 1% in December and 1.3% over the last year, largely due to disappointing German output, falling by 1.2% over December. Eurozone investor confidence slid from 9.6 to 6. Lower confidence is to be expected given increased concerns over the global economy and this year’s equity market turmoil.
  • Japanese economic data was again mixed. Labor cash earnings rose by only 0.1% over 2015, which was disappointing given the consensus estimate of 0.7%. This led to real earnings growth of -0.1% over the same period. The January economy watchers survey revealed a less pessimistic outlook, with the outlook component rising to 49.5 from 48.2 and ahead of consensus. However, the current conditions component fell to 46.6 from 48.7 when only a small fall had been expected. The adjusted current account surplus for December rose to ¥1,635bn, ahead of consensus, as the trade deficit returned to surplus. Producer price inflation remained negative, at 3.1% over the twelve months to January, a sharper contraction than expected, but more moderate than 2015’s contraction.
  • There were no noteworthy Chinese economic data releases last week. 
Source: Aon 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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