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Aon Retirement and Investment Blog

Weekly Update - 7 June 2016

NEW INTELLECTUAL CAPITAL

  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. 
UPCOMING EVENTS
  • A Deep Dive Into the ERISA’s Fiduciary Rules – What Do They Mean for Plan Sponsors? Today from 12:00 p.m. – 1:00 p.m. CT, join us for a webinar where will discuss the new fiduciary rules in the US under ERISA and the Internal Revenue Code, what impact they may have on plan sponsors, and practical next steps for plan sponsors to consider. Read the Final Fiduciary Regulations – Overview for Plan Sponsors white paper for full details. Register today!
Market Moves - Week Ending June 03, 2016

Equities

  • Global equity returns were flat with investors focusing on the upcoming US Federal Reserves (Fed) monetary policy meeting and the downgrade of global growth forecasts by the OECD. The MSCI World Index rose 0.2% over the week and S&P 500 was flat over the week. On a year to date basis, S&P 500 has outperformed MSCI World (3.7% vs. 2.4%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 1.2% over the week compared to 0.0% for S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (3.7% vs. 3.1%). Growth stocks outperformed the Value stocks last week (0.2% vs. 0.1%) as measured by MSCI USA indices. On a year to date basis, Value stocks have outperformed Growth stocks, returning (5.2% vs. 1.8%).
Bonds
  • 10 year US Treasury yields fell by 15bps and 30 year US Treasury yields fell by 14bps, thus ending the week at 1.70% and 2.51% respectively as yields fell sharply towards the end of the week following weaker than expected US employment data, which pushed back the expectation of the timing of another interest rate hike by the Fed.
  • 20 year TIPS and 20 year Breakeven fell by 8bps over the week to 0.43% and 1.44% respectively
  • Credit spreads were broadly unchanged over the week. The Barclays Capital Long Credit Index spread over treasury yields rose by 3bps at 213bps and the Merrill Lynch US Corporate Index spread ended the week 2bps higher at 156bps. Both the US high yield bond spread over US treasury yields and the spread of USD denominated EM debt over US treasury yields finished the week marginally higher by 1bp at 396bps and 609bps respectively. 
Commodities
  • The S&P GSCI rose by 0.6% in USD terms over the week. The energy sector fell by 0.6% as the price of WTI crude oil fell by 1.4% to USD 49/BBL since data indicated that more oil rigs were added by the US drillers. Industrial metals rose by 0.4% over the week but copper prices fell by 0.5% to $4,697/MT. Agricultural prices were 3.1% higher while the gold prices rose 2.3%, finishing the week at $1,240/ounce.
Currencies
  • The US dollar depreciated against major currencies over the week except the sterling. The US dollar appreciated 0.7% against sterling, ending the week at $1.45/£. The US dollar weakened 1.8% against the euro finishing the week at $1.13/€. The Japanese yen appreciated by 2.9% against the US dollar, ending the week at ¥106.76/$.
Economic Releases
  • US economic data was weaker than expected last week. Only 38,000 jobs were added to the US economy in May (when a 160,000 increase was expected), while the unemployment rate fell to a new post-crisis low of 4.7%. This fall represented a bigger fall than expected but it was primarily due to large numbers of people leaving the labor force rather than increased employment, so it should not be taken as a purely positive signal. The manufacturing ISM index unexpectedly rose to 51.3 in May, but the non-manufacturing composite fell by more than forecast to 52.9. Consumer confidence fell to 92.6, with a rise in the percentage of consumers saying jobs are hard to get. Meanwhile, the Case-Shiller 20 City composite rose by 0.85% over March, a solid rate of growth compared to 0.71% the previous month. However, the annual growth remained at 5.43%. Finally, the PCE core deflator, the Federal Reserve’s preferred measure of underlying inflationary pressures, remained at 1.6% year-on-year in April as expected. 
  • In the Eurozone, the European Commission’s confidence indices for the economy and industrial, services and consumer sectors were all in line with expectations. Similarly, unemployment and CPI (headline and core) were both as expected – core consumer price inflation was 0.8%. In Germany, core CPI was 0%. The Eurozone Manufacturing PMI was 51.5 as expected. In contrast, the services and composite PMI indices were both slightly ahead of expectations. This was consistent with an expansion in activity but remains well below December’s 54.3 peak. The PMI deterioration at the start of the year, most likely due to turbulence in global financial markets, has yet to be erased.
  • Japanese economic data had a mixed tone over the week. The labour market continued its moderate recovery in April. Wages grew by 0.3% over the twelve months to April, but this was below the consensus estimate of 0.9%. Real wages rose by 0.6% over the same period. However, the unemployment rate remained at 3.2% in April and the job-to-applicant ratio further rose to 1.34. Industrial production expanded by 0.3% in April when analysts had expected a 1.5% contraction. However, consumption data was weak; retail trade fell by 0.8% over the twelve months to April and household spending fell by 0.4% over the same period. The services PMI rose to 50.4 in May from 49.3, which pushed the composite PMI up to 49.2. Lastly, small business confidence fell to 45.6 in May from 47.8, below economists’ expectation of 47.5. 
  • Chinese economic data was broadly as expected; the Caixin manufacturing PMI fell slightly to 49.2, but the official manufacturing PMI remained at 50.1.
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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