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Aon Retirement and Investment Blog

Weekly Update-6 July 2015 (APAC)

NEW INTELLECTUAL CAPITAL

  • Have you and your colleagues developed a strategy to navigate the impact of the historic decision made by the U.S. Supreme Court to overturn same-sex marriage bans in four states and ultimately to legalize same-sex marriage across the country? Will allowing same-sex marriage across the country ease the administrative burden on employers by providing consistency across states? Join Aon’s upcoming webinar on Tuesday, July 7, as our Senior leaders discuss the key components of the Court’s ruling and what it can mean for your organization and your employees. Register for the webinar here.
  • Radar: Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. Issues dated 18 June 2015 and 25 June 2015 are available.
MARKET MOVES
Equities:
  • Global equity markets fell over the week, as uncertainty over Greece continued to weigh on financial markets, with the country missing a debt payment that was due to the International Monetary Fund. Equity markets sold off sharply on the news that the Greek government had called for a public referendum over the weekend, asking the citizens to vote on a bailout deal. The MSCI World index underperformed the S&P 500 index last week (-1.8% vs. -1.1% USD terms). However, on a year-to-date basis, the MSCI World index has outperformed the S&P 500 index (+3.5% vs. +1.9%).
  • US small cap stocks underperformed large cap stocks as the Russell 2000 returned -2.5% over the week. Year-to-date small cap stocks have outperformed large cap stocks (+3.6% vs. +0.9%). Growth stocks slightly outperformed value stocks last week (-1.1% vs. -1.2%) as measured by the MSCI USA indices. Growth stocks have outperformed value stocks year-to-date by 5.2% vs. -0.4%.
Bonds:
  • The 10 year US Treasury yield finished the week 9 bps lower at 2.38%, as safe haven assets appreciated against a backdrop of worries over Greek debt. 30 year US yields moved down by 5 bps to 3.19% last week.
  • 20 year TIPS yields ended the week 5 bps lower at 0.80%. 20 year breakevens were 2 bps lower at 1.91%.
  • Corporate credit spreads widened over the week. The Barclays Capital Long Credit Index spread over Treasury yields moved up 2 bps to 199 bps as the Merrill Lynch US Corporate Index spread moved 3 bps higher, finishing at 146 bps by the end of the week. The US high yield bond spread over Treasuries was 26 bps higher at 491 bps and the spread of USD denominated EM debt over US finished the week 9 bps higher at 345 bps.
Commodities:
  • The S&P GSCI Commodity index fell by 0.4% in USD terms over the week. The energy sector fell by 2.2%,as the price of Brent crude oil fell 2.7% to $60/BBL. Industrial metals were 0.5% higher over the week, but copper prices were broadly unchanged at $5,744/MT. Agricultural prices were 4.5% higher, whereas gold fell by 0.3% to $1,167/ounce. 
Currencies:
  • The US dollar appreciated by 0.5% against the euro and by 0.8% against sterling, but depreciated by 0.9% against the yen, ending the week at $1.11/€, $1.56/£ and ¥123/$ respectively.
Economic Releases:
  • US data over the last week was generally strong, indicating a growth rebound in the second quarter after the weak first quarter and paving the way for a potential rate hike in September.  The Conference Board measure of consumer confidence rose in June to 101.4 from 94.6. ISM manufacturing picked up to 53.5 in June from 52.8 in May with new orders rising to a six-month high of 56.0. Construction spending rose by a better than expected 0.8% in May. Labor data was a little disappointing, however. Non-farm payrolls rose by 223,000 in June, a drop on the previous month’s downwardly-revised 254,000 gain, and the unemployment rate fell from 5.5% to 5.3%, largely as a result of a decline in the size of the labor force. Average hourly earnings remained unchanged in June, resulting in the annual growth rate falling to 2.0% from 2.3%.
  • Eurozone retail sales grew by 0.2% in May, down from April’s 0.7% but still up year-on-year by 2.4% with April’s sales revised up to 2.7%. A monthly survey carried out by the European Commission indicated that the threat of a Greek exit from the Eurozone has not dented business and consumer optimism too much. Economic confidence fell only slightly to 103.5 from 103.8, remaining near its highest level since mid-2011. Eurozone consumer price inflation (CPI) slipped back to 0.2% year-on-year in June from 0.3% in the previous month and German CPI dropped to 0.3% from 0.7% with the EU harmonized version falling as low as 0.1% in Germany. The unemployment rate for the region remained unchanged at a stubbornly high 11.1% in May. 
  • Japanese economic data was mixed. Retail sales rose by 1.7% over May, higher than the 1.0% growth expected. However, this is unlikely to be sustainable given the current sluggish level of wage growth – wages fell by 0.1% in real terms over the twelve months to May. Industrial production fell by 4.0% over the twelve months to May, disappointing expectations of a more moderate 2.3% fall. The quarterly Tankan Survey showed strength in certain areas – the manufacturing sector beat expectations for both the outlook and current conditions components in the large cap sector, but the opposite held for the small manufacturing sector. Non-manufacturing fared better than manufacturing across the board, but small non-manufacturing companies disappointed versus consensus.
  • Finally, Chinese economic data was fairly lackluster. Industrial profits rose by 0.6% over the twelve months to May, down from 2.6% in April, and the manufacturing PMI held at 50.2 in June, disappointing analysts by staying at the same level as in May.
 
Source: Aon Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream

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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