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Aon Retirement and Investment Blog

Weekly Update - 06 July 2016

NEW INTELLECTUAL CAPITAL

  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version of the June 23rd issue is now also available. 

MARKET MOVES (week ending 1 July 2016)
Equities 

  • Global equities rebounded sharply over the week, as Brexit concerns pushed back central bank interest rate expectations around the world. Both the MSCI World and S&P 500 Indices rose by 3.3% over the week. On a year to date basis, the S&P 500 has outperformed MSCI World (4.1% vs. 1.5%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 returned 2.7% over the week compared to 3.3% returned by the S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (4.1% vs. 2.6%). Growth stocks marginally underperformed Value stocks last week (3.2% vs. 3.3%) as measured by MSCI USA indices. On a year to date basis, Value stocks have outperformed Growth stocks, returning (6.4% vs. 1.3%).
Bonds
  • 10 year US Treasury yields fell by 12bps and 30 year US Treasury yields fell by 18bps, ending the week at 1.44% and 2.23% respectively as yields  trended lower over the week fuelled by the prospect of interest rates remaining lower for a longer period.
  • 20 year TIPS yields fell by 13bps to 0.25% over the week. 20 year Breakeven was unchanged at 1.33%.
  • Credit spreads fell over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 4bps to 214bps while the Merrill Lynch US Corporate Index spread was unchanged at 161bps. The US high yield bond spread over US treasury yields fell by 21bps to 612bps and the spread of USD denominated EM debt over US treasury yields finished the week 17bps lower at 383bps. 
Commodities 
  • The S&P GSCI rose by 2.0% in USD terms over the week. The energy sector rose by 2.7% as the price of WTI crude oil rose by 5.0% ending the week at USD 49/BBL. Industrial metals rose by 4.9% as copper prices rose by 4.5% to $4,900/MT. Agricultural prices fell by 1.1% while the gold price rose 1.7%, finishing the week at $1,336/ounce. 
Currencies
  • The US dollar appreciated against major currencies over the week except for the Euro. The US dollar appreciated 2.6% against sterling, ending the week at $1.33/£. The US dollar marginally fell by 0.1% against the euro finishing the week at $1.11/€. The Japanese yen depreciated by 0.5% against the US dollar, ending the week at ¥102.67/$.
Economic Releases
  • US economic data showed modest improvement last week. First quarter annualised quarter-on-quarter GDP growth was revised up to 1.1% from 0.8%, ahead of expectations. Furthermore, the manufacturing ISM for June strongly beat expectations, rising to 53.2 when analysts had penciled in no change from 51.3. Personal spending rose by 0.4% over May (versus 1.1% in April) and personal income growth suffered a similar slowdown (0.2% versus 0.5%). Meanwhile, the services Purchasing Managers’ Index (PMI) remained at 51.3 in June, while the composite index rose marginally to 51.2. However, we will need to wait for the more closely watched service sector ISM report to get a better steer on activity. House price growth remained fairly steady in April, with prices rising by 5.44% over the twelve months to April, roughly in line with expectations.
  • In the Eurozone, consumer price inflation was 0.1%, ahead of expectations of zero inflation. Meanwhile, the core measure, which strips out volatile food and energy prices, was 0.9%, up from expectations in May of 0.8%. Provisional German inflation was 0.3% in May. Raising inflation away from negative territory continues to be a battle for the European Central Bank who is hoping that the most recent round of easing measures (taken in March) will help to provide a boost to inflation and the economy. Unemployment in the Eurozone was in line with expectations at 10.1%. Interestingly, the German GfK consumer confidence Index beat expectations by 0.3 and was 10.1 as consumers do not yet appear to be affected by discussions around the potential exit of Britain from the EU.
  • Japanese economic data had a mixed tone over the week. Consumer prices continued to fall as consumer price inflation was -0.4% over the year to May, adding more pressure on the Bank of Japan for further monetary easing. The core measure rose by 0.6% over the same period, in line with expectations but slower than the 0.7% rise recorded in April. The unemployment rate remained unchanged in May at 3.2%, but the Job-to-Applicant ratio rose to 1.36, the highest level since October 1991. Consumption data was weak, with retail sales contracting for the third consecutive month, by falling 1.9% year on year in May against the 1.6% fall pencilled in by analysts. Meanwhile, the widely watched Tankan survey for the second quarter provided some relief, with both current conditions and outlook components for large manufacturers exceeding analyst expectations while large non-manufacturer indices met expectations. Large businesses remain more optimistic than small businesses.
  • China’s Caixin PMI came in below consensus, falling to 48.6 in June from 49.2, but the official manufacturing PMI fell marginally to the neutral 50.0 level as expected. Meanwhile, the official non-manufacturing PMI rose to 53.7. Lastly, industrial profits rose by 3.7% over the year to May, which was disappointing when compared with growth over the twelve months to April of 4.2%.
Source: 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. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.


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