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Aon Retirement and Investment Blog

Weekly Update - 11 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 30th issue is now also available. 
UPCOMING EVENTS
  • Upcoming Webinar: Global Retirement Management: Brexit Implications. On July 19 and 20, Aon Hewitt will be hosting a global webinar discussing the impact of Brexit on DC and DB retirement plans around the world, including considerations for multinational organizations. The webinar will broadcast two live sessions to accommodate different global time zones.

Market Moves (Week Ending July 8, 2016)

Equities
  • Global equity markets were flat over the week. Markets were lower for most of the week as financial turmoil continued in Europe due to ‘Brexit’ concerns, UK property funds halting clients from withdrawals and a troubled Italian banking sector. However, markets recovered all of their earlier losses towards the end of the week on the back of better than expected US labour market data. The MSCI World Index rose 0.2% and S&P 500 rose 1.3% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (5.4% vs. 1.6%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 1.8% over the week compared to 1.3% rise by S&P 500. On a year to date basis, Large Cap stocks outperformed Small Cap stocks (5.4% vs. 4.5%). Growth stocks outperformed Value stocks last week (1.8% vs. 0.9%) as measured by MSCI USA indices. On a year to date basis, Value stocks outperformed Growth stocks, returning (7.4% vs. 3.1%). 
Bonds
  • 10 year US Treasury yields fell by 9bps and 30 year US Treasury yields fell by 13bps, thus ending the week at 1.36% and 2.10% respectively, as the US Federal Reserve (Fed) meeting minutes suggested a cautious approach to further interest rate hikes.
  • 20 year TIPS yields fell by 7bps to 0.18% over the week.  20 year Breakeven fell by 5bps to 1.29%.
  • Credit spreads fell over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 7bps at 222bps and the Merrill Lynch US Corporate Index spread ended the week 4bps lower at 157bps. The US high yield bond spread over US treasury yields fell by 24bps to 588bps and the spread of USD denominated EM debt over US treasury yields finished the week 6bps lower at 377bps.
Commodities
  • The S&P GSCI fell by 5.0% in USD terms over the week due to global growth concerns. The energy sector fell by 7.2% as the price of WTI crude oil fell by 7.4%, ending the week at USD 45/BBL. Crude oil prices fell on the back of increased production from Nigeria along with US dollar strength. Industrial metals fell by 2.1% as copper prices declined by 4.1% to $4,698/MT. Agricultural prices fell 2.3% while the gold price rose 1.5%, finishing the week at $1,356/ounce.
Currencies
  • The US dollar appreciated against major currencies over the week except for the yen. The US dollar appreciated 2.3% against sterling, ending the week at $1.30/£. The US dollar strengthened 0.9% against the euro finishing the week at $1.10/€. The Japanese yen appreciated by 2.1% against the US dollar, again touching the 100 level to end the week at ¥100.55/$.
Economic Release
  • US economic data was mixed. June’s jobs report revealed a monthly gain in non farm payrolls of 287,000, a strong increase, partly offsetting May’s very soft 11,000 (revised down from the previous estimate of 38,000) increase. However, the unemployment rate ticked up from its post-crisis low of 4.7% to 4.9%, a slightly higher increase than expected. This was primarily due to new entrants in the labor force, which moderated the negative impact of the rise in the unemployment rate. Meanwhile, the non-manufacturing ISM for June was strong, rising from 52.9 to 56.5; analysts expected only a small rise. Average hourly earnings rose by 2.6% over the year to June, slightly disappointing the consensus, but still a healthy rate of growth. However, only 0.1% points of that are attributable to wage growth over June. Lastly, the IBD/TIPP economic optimism index for July fell to 45.5, catching analysts, who expected no change (from a prior reading of 48.2), off-guard. 
  • In the Eurozone, retail sales volumes were in line with expectations with a monthly increase of 0.4%. The year-on-year figures were 0.1% behind expectations at 1.6%. The Eurostat producer prices index (excluding construction) came in at 0.6% month-on-month for May following a decline of 0.3% in the previous month. German industrial production (adjusted for seasonal swings) dropped the most in 21 months, falling by 1.3% from the previous month where it rose 0.5%. Germany's construction PMI (seasonally adjusted) fell from 52.7 to 50.4.
  • Japanese economic data was disappointing over the week. Wages contracted for the first time since June 2015, falling by 0.2% over the twelve months to May, whereas analysts had expected an increase of 0.5%. Real wages rose 0.2% over the same period, slower than the 0.6% rise recorded in the previous month. The June Economy Watchers survey revealed the most pessimistic outlook since November 2012 as the outlook component sharply fell to 41.5 from 47.3, much below the consensus estimate of 46.7. The current conditions component also fell to 41.2 over the same period. The adjusted current account surplus for May was weaker than expected at ¥1415bn (consensus estimate of ¥1515bn) as the trade surplus was lower than expected at ¥40bn compared to the expected surplus of ¥56bn. The services PMI entered contraction territory at 49.4 in June from 50.4, which dragged down the composite PMI to 49.0.
  • In China, the services PMI rose to 52.7, but the fall in the manufacturing PMI (already released before the week) brought the composite down to 50.3.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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