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Aon Retirement and Investment Blog

Weekly Update - 24 July 2017


  • Managing Retirement Programs in the Utility Industry: Trends and Benchmarking. Join our next Retirement & Investment U.S. webinar on July 25th at 12 noon CT. While retirement programs provide critical benefits for employees, they represent substantial cost and risk for plan sponsors. Utility companies employ diverse design, financing, and investment strategies when managing their programs. During this webinar, we’ll take a closer look at these strategies and share benchmarking data and trends in the utility industry.
MARKET MOVES (Week Ending July 21, 2017)
  • Global equity markets ended higher over the week as the US Q2 2017 earnings season began strongly. Meanwhile, the European Central Bank (ECB) and the Bank of Japan both voted to keep their monetary policies unchanged. The MSCI World Index rose by 0.6% over the week, at par with S&P 500 which also rose 0.6% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (13.5% vs. 11.7%).
  • US Large Cap stocks outperformed Small Cap stocks as S&P 500 rose by 0.6% over the week while Russell 2000 rose by 0.5%. On a year to date basis, S&P 500 has outperformed Russell 2000 (11.7% vs. 6.6%). Growth stocks outperformed Value stocks last week (0.9% vs. 0.2%) as measured by Russell indices. On a Year to date basis, Growth stocks have outperformed Value stocks (17.7% vs. 5.6%).
  • 10 year US Treasury yields fell by 9bps and 30 year US Treasury yields fell by 11bps, ending the week at 2.24% and 2.81% respectively. Yields fell despite encouraging economic data.
  • 20 year TIPS yield fell by 6bps to 0.64% over the week. 20 year Breakeven fell by 4bps to 1.69%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 152bps and Merrill Lynch US Corporate Index fell by 1bp to 110bps over the week. The US high yield bond spread over US treasury yields fell by 9bps to 364bps. The spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 306bps.
  • The S&P GSCI fell by 0.6% in USD terms over the week. The energy sector fell by 1.2% despite the price of Brent crude oil increasing by 1.9% to $50/BBL. Industrial metals fell by 0.2% despite copper prices increasing by 1.1% to $5,971/MT. Agricultural prices rose by 0.5% whilst gold prices rose by 2.0% to $1,252/ounce.
  • The US dollar depreciated against major currencies (except sterling) over the week. The US dollar appreciated by 0.7% against sterling, ending the week at $1.30/£. US dollar weakened by 1.8% against the euro, finishing the week at $1.17/€. The Japanese yen appreciated by 1.3% against the US dollar, ending the week at ¥111.13/$.
Economic Releases
  • Over the week, US regional manufacturing data disappointed, with both the Philadelphia Fed Business Outlook (for the mid-Atlantic region) and the Empire Manufacturing index declining more than expected in June. Whilst both indices remain in expansionary territory (index levels above 0) they did reflect a marked deceleration; with the former dropping 8.1 points to 19.5 (below the forecasted 23.0), while the Empire Manufacturing index plummeted by 10.0 points from a two-year high to 9.8 (short of estimates of a fall to 15.0). The US housing market was more resilient, with the number of housing starts rebounding strongly after May's disappointing numbers, increasing by 8.3% which was above forecasts of a 6.2% rise. Similarly, the number of building permits issued recovered, rising by 7.4% in June after decreasing 4.9% in the previous month.
  • In Europe over the week, the ECB voted to leave their accommodative monetary policy unchanged as markets expected. Other economic releases also largely met consensus expectations, with no surprises from the final June Consumer Price Index (CPI) revisions. Headline consumer price inflation was confirmed at 1.3% year-on-year, as predicted, slightly lower than the revised previous figure of a 1.4% rise. According to the latest survey from the ZEW think-tank, analysts remain upbeat on the German economy. ZEW’s index covering the current economic situation marginally dipped from June, reaching 86.4 in July from the previous reading of 88.0. Similarly, initial July data for the ZEW Survey Expectations index for the Eurozone fell to 35.6 from 37.7.
  • Over the week, the Bank of Japan (BoJ) kept its monetary policy unchanged and lowered inflation forecasts for 2017 and 2018, while delaying the target date for achieving its 2.0% inflation target. The All Industry Activity index fell by 0.9% in May, more than the consensus estimate of 0.8% and up from April's revised increase of 2.3%. The trade balance swung back to a surplus of ¥439.9bn in June from a revised trade deficit of ¥204.2bn in the previous month, but missed expectations of a surplus of ¥488.0bn. Exports rose by 9.7% over the year, marginally ahead of forecasts of a 9.5% increase while imports grew by 15.5% which was also above consensus estimates of 14.4%.
  • Economic releases in China were positive across the board last week as second quarter annualized GDP growth topped expectations coming in unchanged at 6.9%, above forecasts of 6.8%. The consumer sector remained buoyant as retail sales rose by 11.0% in the year to June, up from 10.7%. Industrial production jumped by 7.6% over the year outperforming expectations that growth would remain unchanged at 6.5%.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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