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Aon Retirement and Investment Blog

Weekly Update - 14 March 2016 (UK/Europe)


  • RadarProvides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. 


  • Pension Annuity Settlement Webinar. Please join us on March 22nd 12-1pm CST for a US-hosted webinar featuring a panel of industry experts that will share insights regarding navigating the complexity of these transactions. 
  • Global equities finished the week higher supported by Eurozone monetary easing towards the end of the week and rising oil prices. A surge in crude oil prices, following comments from the International Energy Agency (IEA) that oil prices may have bottomed out, pushed equities into positive territory. The MSCI AC World Index rose by 0.8% in local currency terms but fell 0.1% in sterling terms due to sterling strength.  The US was the best performing region in local currency terms with a return of 1.2%. Developed Asia Pacific ex Japan was the best performing region in sterling terms (0.9%) due to rising commodity prices. Japan was the worst performing market in both local currency (-1.3%) and sterling terms (-2.3%) as economic data was weak.
  • UK government bond yields rose across all maturities.  The 10 year UK gilt yield was 9bps higher at 1.58% and the 20 year UK gilt yield rose by 3bps to 2.23%. The 10 year US treasury yield rose by 10bps, finishing the week at 1.98%.  The majority of European government bond yields fell over the week with the notable exception of Germany, as the European Central Bank (ECB) announced an increase in additional monetary stimulus by cutting interest rates and expanding the asset purchase program. German bund yields rose by 4bps from very low levels to finish the week at 0.28% and French government bond yields fell by 4bps to finish the week at 0.53%.
  • UK real yields fell over the week. Both the 20 year real yield and Over 5 year real yield fell by 5bps to -0.88% and -0.98% respectively. 20 year breakeven inflation rose by 9bps to 3.05%.
  • Credit spreads tightened over the week as investor flows supported riskier assets. The US high yield bond spread over US treasury yields was 26bps lower at 682bps and the spread of USD denominated EM debt over US treasury yields finished the week 14bps lower at 410bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 10bps at 158bps.
  • The S&P GSCI Index rose by 3.7% in USD terms over the week due to strengthening crude oil prices.  The energy sector rose by 6.2% as the price of Brent crude oil rose by 6.0% to $41/BBL and WTI crude oil rose by 7.2% to finish the week at $39/BBL. Industrial metals prices fell by 1.7% over the week as copper prices decreased by 1.0% to $4,987/MT. Agricultural prices were 2.2% higher while gold prices fell by 1.0%, finishing the week at $1,258/ounce.
  • Sterling continued to recover some of its recent losses and appreciated against the US dollar and yen but depreciated marginally against the euro over the week.  The US dollar depreciated by 1.2% against sterling, ending the week at $1.44/£. The euro rose by 0.1% against sterling, finishing the week at €1.29/£. The Japanese yen strengthened against the US dollar by 0.3%, ending the week at ¥113.52/$.
  • US economic data was fairly disappointing. The NFIB Small Business Optimism index fell to 92.9 in February from 93.9 when the consensus was looking for a small rise to 94.0. The Labour Market Conditions index fell by 2.4 in February, which disappointed the consensus expectation of a 1.0 rise. Wholesale inventories rose by 0.3% over January but trade sales fell by 1.3% over the same period. Both were expected to fall by 0.3%. In slightly better news, households’ net worth gained $1.6tn in the fourth quarter of 2015, helped by rising equity and house prices over the period. This gain more than offset Q3’s $1.3tn loss. Lastly, import prices fell by 6.1% over the twelve months to February, continuing to reflect the US dollar’s rise and low oil price.
  • UK industrial production rose by 0.3% in January, marginally behind expectations of 0.4% but an improvement on December when production fell by 1.1%. January’s manufacturing production figures were encouraging and ahead of analysts’ expectations of 0.2% growth. They increased by 0.7% in January, leading 12 month growth to improve to -0.1%, a large improvement on the previous annual reading of -1.7%.  However, the stronger manufacturing picture didn’t feed through to National Institute of Economic and Social research, which estimated that over the three months to February, GDP growth was 0.3%, down from 0.4% in January. This was evidenced by BRC like-for-like retail sales, which disappointed expectations (0.5%) and grew by only 0.1% over the twelve months to February, after strong growth of 2.6% over the twelve months to January. December’s overall trade deficit was revised up by £1bn to £3.7bn, and the deficit in January was reported as £3.5bn.
  • The ECB loosened monetary policy at their meeting this week. They cut the refinancing rate from 0.05% to 0%, moved the deposit rate further into negative territory reducing the rate by 10bps to -0.4%, and simultaneously increased the quantitative easing programme from €60bn to €80bn per month. The second estimate of fourth quarter Eurozone GDP growth confirmed that the economy grew by 0.3% over the three months, but annual growth was revised up marginally from 1.5% to 1.6%. The Sentix investor confidence index disappointed and fell by 0.5 to 5.5 despite analysts predicting a rise to 8.3. This is despite strong industrial production and factory orders growth in Germany over January.
  • Japanese data flow was generally weak. Q4 GDP was revised marginally upwards (to -1.1% quarter-on-quarter annualised) as business spending grew by more than first thought. The adjusted current account surplus for January was weaker than expected (¥1,492bn actual vs ¥1,655bn expected) but the trade deficit was also lower than expected, at ¥411bn. The February economic watchers survey continued to be pessimistic; both the current conditions and outlook components (44.6 and 48.2 respectively) were below consensus expectations. The consumer confidence index fell to a one year low of 40.1 in February.
  • Chinese economic data was mixed. Exports fell by a surprisingly large 20.6% in yuan terms over the twelve months to February when analysts had expected a 11.3% fall. Imports also fell by 8.0% but the fall was smaller than anticipated. These flows led to a smaller than expected trade surplus of CNY210bn. CPI inflation rose to 2.3% in February when analysts had expected inflation to remain at 1.8%. Finally, both new yuan loans and aggregate financing fell substantially in February from January levels and disappointed versus consensus.

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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