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Aon Retirement and Investment Blog

Weekly Update - 13 June 2016

NEW INTELLECTUAL CAPITAL

  • Global Retirement Update for May 2016 - This Update summarizes recent legislative developments and trends related to retirement and financial management and highlights recently passed and pending legislation that may require employers to take action to comply with new rules or review existing plans.
  • Radar - Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health.
  • If You Offer It, Participants Will Use It: Roth Usage in Defined Contribution Plans – Roth accounts within a defined contribution plan have become the norm, not the exception. According to Aon Hewitt’s 2015 Trends & Experience in Defined Contribution Plans report, 58% of employers currently allow employees to make Roth contributions, an increase from only 11% in 2007. This US paper explores participant use of these plans.
MARKET MOVES -  Week Ending June 10, 2016

Equities
  • Global equity markets edged lower in local currency terms over the week. Markets had risen initially, driven by dovish comments from the US Federal Reserve (Fed), before reversing its course later in the week as global growth concerns resurfaced with the World Bank downgrading its Global GDP forecast. The MSCI World Index fell 0.8% and S&P 500 fell 0.1% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (3.6% vs. 1.6%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 was flat at 0.0% over the week compared to 0.1% fall by S&P 500. On a year to date basis, Large Cap stocks outperformed Small Cap stocks (3.6% vs. 3.1%). Value stocks outperformed Growth stocks last week (0.1% vs. -0.5%) as measured by MSCI USA indices. On a year to date basis, Value stock outperformed Growth stocks, returning (5.4% vs. 1.3%). 
Bonds
  • 10 year and 30 year US Treasury yields fell by 6bps, thus ending the week at 1.64% and 2.45% respectively.
  • 20 year TIPS yields fell by 6bps to 0.37% over the week.  20 year Breakeven fell by 1bp to 1.43%.
  • Credit spreads narrowed over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 1bp at 212bps and the Merrill Lynch US Corporate Index spread ended the week unchanged at 156bps. The US high yield bond spread over US treasury yields fell by 11bps to 598bps and the spread of USD denominated EM debt over US treasury yields finished the week 2bps lower at 394bps.
Commodities
  • The S&P GSCI rose by 1.3% in USD terms over the week. The energy sector rose by 1.3% as the price of WTI crude oil rose by 0.8% to USD 49/BBL. Industrial metals fell by 0.3% over the week as copper prices sharply fell by 4.3% to $4,496/MT. Agricultural prices were 2.4% higher and the gold prices rose 2.7%, finishing the week at $1,274/ounce.
Currencies 
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated 1.3% against sterling, ending the week at $1.43/£. The US dollar strengthened 0.3% against the euro finishing the week at $1.13/€. The Japanese yen depreciated by 0.1% against the US dollar, ending the week at ¥106.91/$. 
ECONOMIC RELEASES
  • In the US, the pace of hiring slipped to the lowest level since September 2010 with the previous week's payroll report raising questions about the underlying health of the labour market. However, the latest jobless claims data (expected 270k vs actual 264k) appeared to show that there isn't a strong swing towards rising unemployment as yet. The University of Michigan Consumer Sentiment Index remained strong in June (94.3 vs 94.7 previously). This was driven by consumers' improved assessment of their financial situation. Expectations for a better employment situation in June will come as good news to the Fed which is counting on consumers to support economic growth this year. 
  • Faster than expected GDP growth in the Eurozone in Q1 (1.7% vs 1.5%) was driven by household consumption. That category of expenditure is likely to continue being the biggest contributor to the expansion since the end of the Euro crisis. The latest surveys (such as the PMIs) point to a similar reading for Q2, though they may overstate the pace. German industrial production rose slightly faster than anticipated in April (0.8% vs 0.7%), though the strong growth performance in Q1 is unlikely to be repeated.
  • Japanese economic data had a mixed tone last week. Q1 2016 GDP data was revised upwards (1.9% QoQ annualised), as private consumption grew by more than first thought and business spending fell less than the earlier estimate. The May Economy Watchers survey revealed a less pessimistic outlook with the outlook component rising to 47.3 from 45.5, ahead of consensus. However, the current conditions component fell to 43 which was a greater fall than expected. The current account balance for April was weaker than expected ¥1879bn (consensus estimate ¥2303bn) as trade surplus was lower than expected at ¥697bn (consensus estimate ¥919bn). Over the twelve months to May, producer price inflation remained in negative territory at -4.2%, unchanged from the previous month. Machine tool orders contracted for the tenth consecutive month, falling by 25% over the twelve months to May.
  • Chinese CPI was slightly weaker than expected at 2.0%. Tepid consumer price gains may allow the PBOC room to add further stimulus in the short term to help prop up growth. Amid a drive by the Communist Party leadership to cut excess capacity, the producer price index fell 2.8% which was less than market expectations. Easing factory gate deflation is a tentative signal of stabilization after more than four years of falling producer prices.
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, nor should it be treated as investment advice. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal or investment advice. Please consult with your independent professional for any such advice. The blog content is intended for professional investors only.


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