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Aon Retirement and Investment Blog

Weekly Update - 20 June 2016 (UK/Europe)


  • Rethink Pensions: European Pension and Retirement Savings ConferenceAon Hewitt’s first EMEA-wide pension and retirement savings conference takes place in October in Amsterdam. Meet with your peers, exchange ideas and hear from thought leaders on pensions and retirement at our free one-day conference. Leave with insight into all aspects of corporate pensions and retirement provision.
  • European Union: European Pensions Regulator Proposes Pan-European Pensions Risk Framework. Aon has produced a note summarising the latest proposals from the European Insurance and Occupational Pensions Authority  (EIOPA) for a pan-European pensions risk framework. This follows a recent Europe-wide impact assessment showing a total shortfall in European pension schemes, calculated using risk-free measures, of €1,200bn (of which €950bn was for UK schemes). No immediate action is required; but the proposals reinforce the continued focus on risk and governance in pension schemes across Europe.
  • Discount Rate Update. Average discount rates increased during May as the treasury curve flattened and corporate spreads widened at the long end of the curve. The average plan sponsor’s discount rate increased 2 basis points in May to 4.07%. In early June, rates have decreased by 16 basis points.
  • RadarProvides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health.


  • Global equity markets ended sharply lower over a volatile trading week as investors’ focused their attention on US Federal Reserve statements and the possible exit of Britain from the EU as the “Leave” campaign gained momentum. The MSCI AC World Index fell 1.8% in local currency terms and 1.5% in sterling terms. Developed North America was the best performing region in local currency terms as it fell the least with a 1.1% drop. However, the US was also the best performing region in sterling terms (-0.8%) as the dollar appreciated over the week. Japan was the worst performing region both in local currency and sterling terms, falling 5.7% and 3.1% respectively, as renewed yen strength hit exporters' profits after the Bank of Japan (BoJ) left its monetary policy unchanged.
  • UK nominal gilt yields fell across all maturities to all-time lows as the Bank of England (BoE) kept its interest rate unchanged, led by the uncertainty surrounding Brexit. The 10 year UK gilt yield fell by 9bps to 1.27% while the 20 year UK gilt yield fell by 5bps to 1.89%. The 10 year US treasury yield fell by 2bps to 1.62% as the US Federal Reserve (Fed) left interest rates unchanged. European government bond yields rose across the region with the exception of German bund yields which were unchanged at 0.02%. German bund yields entered negative territory during the week for the first time as demand for safe haven bonds increased. French government bond yields rose by 4bps to 0.43%.
  • UK real yields fell over the week. The 20 year real yield fell by 10bps to finish the week at -1.04% and the Over 5 year real yield fell by 11bps to -1.11%. 20 year breakeven inflation rose by 5bps to 2.88%.
  • Credit spreads widened over the week as investors became more risk averse due to global growth concerns. The US high yield bond spread over US treasury yields rose by 23bps to 621bps and the spread of USD denominated EM debt over US treasury yields finished the week 11bps higher at 405bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) rose by 6bps, ending the week at 143bps.
  • The S&P GSCI fell by 1.3% in USD terms over the week. The energy sector fell by 2.4% as the price of Brent crude oil fell sharply by 5.1% to USD 48/BBL over Brexit worries. Industrial metals rose by 0.8% as copper prices rose by 1.0% to $4,542/MT. Agricultural prices were 0.5% higher and the gold prices rose 1.1%, finishing the week at $1,287/ounce.
  • Sterling weakened against major currencies over the week except for the euro. The US dollar appreciated by 0.2% against sterling, ending the week at $1.43/£. The euro fell by 0.2% against sterling, finishing the week at €1.27/£. The Japanese yen sharply rose 2.5% against the US dollar, ending the week at ¥104.29/$.


  • US economic data was fairly soft. Headline consumer price inflation slowed to 1.0% in May when analysts had hoped it would remain at 1.1%. However, the ‘core’ index, which excludes volatile food and energy components, rose by 2.2% over the same period, a slight increase of 0.1% on the previous month. Real wage growth remained at 1.1% in May (on a year-on-year basis). Retail sales (excluding auto and gas) rose by 0.3% in May, in line with expectations but a fall from the prior month’s 0.6% gain. The NAHB housing market index rose to 60 from 58, just beating expectations, and the Empire manufacturing index strongly rose to 6 from -9. Industrial production fell by 0.4% in May, nearly offsetting the 0.6% rise from the previous month, but still in line with the broadly declining trend since late 2014. Lastly, the current account deficit widened to $125bn in the first quarter of 2016, up from $113bn the previous quarter.
  • The UK Unemployment Claimant Count Monthly change was better than expected by 0.4k. Some may see this as a sign that the labour market is holding up well amongst Brexit uncertainty. However, this could be premature as changes can take time to affect labour demand. UK YoY CPI was lower than expected at 0.3% (vs 0.4% expected). ILO unemployment fell to 5.0%, a low since 2005 and average weekly earnings over the three months to April were 2.0% higher than during the same period last year.
  • Eurozone annual consumer price inflation was in line with expectations at -0.1%. Core inflation also met expectations at 0.8%. Industrial production ex construction in April was better than expectations at 1.1%. Q1 unemployment rose by 1.4%, up from 1.2% in the previous period.
  • It was a very light week for economic releases in Japan. Industrial production was revised up over April from 0.3% to 0.5%. The Bank of Japan kept its monetary policy unchanged at -0.1% and maintained its qualitative easing programme at ¥80tn, although it is expected that some more quantitative easing may be announced later in the summer.
  • Foreign direct investment into China fell by 1.0% over the year to May in renminbi terms, a disappointing reading given expectations of 5.0% growth. Meanwhile, annual retail sales growth to May was 10.0%, 0.1% less than expected, and industrial production grew by 6.0% over the same period.
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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