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Aon Retirement and Investment Blog

Weekly Update - 25 July 2016 (UK/Europe)

ANNOUNCEMENTS

  • Aon Hewitt Investment Consulting, Inc., an Aon plc company, was recognized by Greenwich Associates as a leader in overall U.S. Investment Consulting.  More information regarding Aon Hewitt Investment Consulting and the Greenwich Quality Leaders Awards can be found here.

 NEW INTELLECTUAL CAPITAL

  • Sample Annuity Rates. Monthly update for pricing of annuity purchases as of 30 June 2016.
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. French version is also available.

MARKET MOVES

  • Global equities ended higher in a volatile trading week despite political tensions in Turkey and terrorist attacks in Germany. The IMF downgraded their 2016 global economic growth forecast by 0.1% to 3.1%. However, stronger than expected US earnings reports and manufacturing data pushed up valuations. The MSCI AC World Index rose 0.7% in local currency terms and 1.5% in sterling terms. Developed Asia Pacific ex Japan was the best performing region in local currency terms (1.5%). Whilst the US was the best performing market in sterling terms with a return of 1.9% as the US dollar continued to appreciate against sterling. Emerging Markets were the worst performing region in local currency terms as falling crude oil prices limited returns to 0.6%. MSCI AC Europe was the worst performing region in sterling terms, returning 0.9%.
  • UK nominal gilt yields fell across short and medium term maturities. The 10 year UK gilt yield fell by 3bps to 0.92% while the 20 year UK gilt yield was unchanged at 1.55%. The 10 year US treasury yield fell by 3bps to 1.57%. European government bond yields broadly fell across countries following dovish comments by European Central Bank president Mario Draghi. German bund yields fell by 2bps to -0.08% and French government bond yields fell by 1bp, ending the week at 0.22%.
  • UK real yields fell over the week. The 20 year real yield fell by 1bp to -1.33% and the Over 5 year real yield fell by 2bps to finish the week at -1.35%. 20 year breakeven inflation fell by 2bps to 2.83%.
  • Credit spread moves were mixed over the week. The US high yield bond spread over US treasury yields fell by 3bps to 539bps but the spread of USD denominated EM debt over US treasury yields finished the week 4bps higher at 354bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) fell by 3bps, ending the week at 131bps.
  • The S&P GSCI fell by 3.3% in USD terms over the week. The energy sector fell by 4.3% as the price of Brent crude oil fell by 4.5%, ending the week at USD 46/BBL. Industrial metals fell by 1.0% despite the copper price rising by 0.2% to $4,911/MT. Agricultural prices fell 2.9% and the gold price fell 0.5%, finishing the week at $1,321/ounce.
  • Sterling declined against major currencies over the week on the back of weak manufacturing data. The US dollar appreciated by 1.1% against sterling, ending the week at $1.31/£. The euro appreciated by 0.3% against sterling to €1.19/£. The Japanese yen fell 0.4% against the US dollar to ¥106.27/$ as expectations for the Bank of Japan to announce further monetary stimulus kept the yen weak.

ECONOMIC RELEASES

  • In a light week for US economic data, the Markit US manufacturing purchasing managers’ index (PMI) rose to 52.9 in July according to preliminary estimates from 51.3 in June. The strong rise was unexpected by markets. Meanwhile, housing data was mixed; housing starts rose by 4.8% in June when analysts hadn’t even expected growth to offset May’s 1.7% fall. Existing home sales grew by a lesser amount over the same period (1.1%). Finally, the NAHB housing market index fell slightly to 59 from 60.
  • In the UK, headline CPI was 0.5%, 0.1% ahead of expected inflation. Core CPI (which excludes volatile food and energy prices) was 1.4%, again 0.1% ahead of expectations. It was partly boosted by a surge in airfares as football fans travelled to France for the European Championship. RPI was 1.6%, similarly ahead of expectations. As the rise in inflation was driven by erratic components, there may be some reversal in coming months. The provisional UK PMI manufacturing index (seasonally adjusted) suggested a fall to 49.1 from 52.1 in the previous month. The Services PMI also fell to 47.4 from 52.3 in the previous month. These surveys were conducted in the immediate aftermath of the EU referendum and support the case for loosening monetary policy in August. The change in jobless claims over June was c. 310,000 lower than expected.
  • In the Eurozone, the ECB maintained its main refinancing rate at 0.0% amid concerns over Europe's banks. Similarly, it also maintained the deposit facility rate at -0.4% and the marginal lending facility at 0.25%. The Markit Eurozone Manufacturing PMI (provisional) was 51.9 in July, broadly in line with the fall expected by analysts on the previous month. Advance survey results of the European Commission Consumer Confidence Indicator showed consumer confidence has fallen further since June, falling by 0.7 to -7.9 in July. In Germany, both manufacturing and services provisional PMIs exceeded expectations resulting in the composite index increasing from 54.4 in June to 55.3 in July.
  • Japanese economic data had a weak tone which has increased speculation that there will be further monetary easing later this month. The preliminary manufacturing PMI for July improved to 49.0 from 48.1 in June but remains in contraction territory, exacerbated by low international demand and the strong yen. Consumption data continued to be weak as department store sales fell by 3.5% over the twelve months to June, driven by a fall in sales to foreign visitors. Sales in the capital also fell by 3.2% over the same period. Supermarket sales fell by 0.5% over the twelve months to June.
  • There was no noteworthy economic data from China over the week.
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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