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Aon Retirement and Investment Blog

Weekly Update - 18 July 2016

NEW INTELLECTUAL CAPITAL

  • Corporate Liability Hedging Views. An update of U.S. hedging views as of 30 June 2016. 
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. French version of the July 7th issue is also available.
  • Discount Rate Update. Average discount rates decreased during June as the United Kingdom voted for its withdrawal from the European Union. Rates moved significantly lower across the curve in the United States and other developed markets. The average plan sponsor’s discount rate decreased 23 basis points in June to 3.84%. In early July, rates have decreased by 19 basis points through Wednesday.  

MARKET MOVES (Week Ending July 15, 2016)
Equities

  • Global equity markets rose over the week as global monetary easing remained on the agenda and there was a better than expected start to the US earnings session. The MSCI World Index rose 2.3% outperforming S&P 500 which returned 1.5% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (7.0% vs. 4.0%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 2.4% over the week compared to 1.5% rise by S&P 500. On a year to date basis, Large Cap stocks and Small Cap stocks both returned 7.0%. Growth stocks underperformed Value stocks last week (1.1% vs. 1.8%) as measured by MSCI USA indices. On a year to date basis, Value stocks outperformed Growth stocks, returning (9.3% vs. 4.3%). 
Bonds
  • 10 year US Treasury yields rose by 19bps and 30 year US Treasury yields rose by 17bps, thus ending the week at 1.55% and 2.27% respectively, driven by positive US economic data.
  • 20 year TIPS yields rose by 12bps to 0.30% over the week.  20 year Breakeven rose by 6bps to 1.35%.
  • Credit spreads narrowed over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 8bps at 202bps and the Merrill Lynch US Corporate Index spread ended the week 8bps lower at 149bps. The US high yield bond spread over US treasury yields fell by 46bps to 542bps and the spread of USD denominated EM debt over US treasury yields finished the week 27bps lower at 350bps
Commodities
  • The S&P GSCI rose 0.6% in USD terms. The energy sector rose by 1.0% as the price of WTI crude oil rose by 1.2%, ending the week at USD 46/BBL. Industrial metals rose by 2.6% as copper prices rose by 4.3% to $4,901/MT. Agricultural prices rose 0.2% while the gold price fell 2.1%, finishing the week at $1,328/ounce..
Currencies
  • The US dollar depreciated against major currencies over the week except for the yen. The US dollar depreciated 2.1% against sterling, ending the week at $1.32/£. The US dollar weakened 0.3% against the euro finishing the week at $1.11/€. The Japanese yen weakened by 5.0% against the US dollar, ending the week at ¥105.81/$.
Economic Releases
  • US economic data was mixed. The University of Michigan consumer sentiment index fell to 89.5 from 93.5 in July, the lowest reading in three months. However, advance data for retail sales suggested a monthly growth rate of 0.6% in June, higher than expected. Industrial production grew by the same amount in June, more than offsetting the -0.3% contraction seen the previous month. Consumer price inflation (CPI) was 1.0% over the year to June, the same as May’s reading but less than consensus analysts forecasts. The core index, which excludes volatile energy and food components, rose by 2.3%, a slight improvement on the previous month. Lastly, the NFIB Small Business Optimism Index rose to 94.5 in June, marking the third consecutive monthly rise.
  • In the Eurozone, month-on-month CPI for June was 0.2%, a fall from May's increase of 0.4%, feeding doubts over whether inflation will be enough to meet the ECB's target over the medium term. May industrial production (seasonally adjusted) month-on-month declined by 1.2%, well beyond market expectations of -0.8%. However, industrial production in April was revised up from 1.1% to 1.4% which largely made up for the disappointing May figure. Large falls in energy and capital goods output were the key drivers of the May fall.
  • It was a very light week for economic releases in Japan. Machine tool orders remained in contraction territory, falling by 19.9% over the twelve months to June. The final reading for industrial production was revised downwards to -0.40% over the twelve months to May, indicating a deeper contraction than the preliminary estimate of -0.10%.
  • Chinese GDP growth for Q2 beat expectations with a reading of 6.7% versus 6.6% expected, which matched Q1’s growth rate. Industrial production also surprised on the positive side, growing by 6.2% over the year to June (versus 5.9% expected). However, imports shrank by 2.3% over the same period. Finally, exports grew by 1.3% over the twelve months to June, beating the consensus estimate by one percentage point.
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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