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Aon Retirement and Investment Blog

Weekly Update - 21 March 2016

NEW INTELLECTUAL CAPITAL

  • Discount Rate UpdateAverage discount rates in the US fell during February, as investors continue to seek safety assets. The average plan sponsor’s discount rate decreased 7 basis points in February, to 4.45%. After a tumultuous month in equities and commodities, Treasury rates finished the month lower. In early March, rates have decreased by an additional 8 basis points through Monday.
  • RadarProvides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version is also available. 
UPCOMING EVENTS
  • 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. 
MARKET MOVES (as of March 18, 2016)
Equities
  • Global equities ended the week higher; however there were notable differences between regional returns. Global markets were driven by dovish comments from the US Federal Reserve (Fed) and the continued rebound in energy prices. The MSCI World Index rose 1.2% over the week but underperformed the S&P 500 which rose 1.4%. On a year to date basis, S&P 500 has outperformed MSCI World (0.8% vs. -0.5%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose 1.4% over the week compared to 1.3% returned by Russell 2000. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (0.8% vs. -2.7%). Growth stocks outperformed the Value stocks last week (1.5% vs. 1.2%) as measured by MSCI USA indices. However, Value stocks have outperformed Growth stocks, returning (2.1% vs. -1.4%) on a year to date basis.  
Bonds
  • 10 year US Treasury yields fell by 11bps to 1.87% over the week and 30 year US Treasury yields fell by 7bps to 2.68%.
  • 20 year TIPS yields fell by 17bps to 0.59% over the week. 20 year Breakeven were 5bps higher at 1.47%.
  • Credit spreads tightened over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 6bps to 227bps and the Merrill Lynch US Corporate Index spread ended the week 9bps lower at 176bps. The US high yield bond spread over US treasury yields was 11bps lower at 671bps and the spread of USD denominated EM debt over US treasury yields finished the week 9bps lower at 401bps. 
Commodities
  • The S&P GSCI Index rose by 1.2% in USD terms. The energy sector rose by 2.0% as the price of WTI crude oil rose by 2.5%, finishing the week at USD 39/BBL. The price of crude oil reached its highest level in 2016 over the week, as hopes increased of an output freeze by big producers. Industrial metals fell marginally by 0.4% over the week but copper prices rose by 1.8% to $5,075/MT. Agricultural prices were 0.5 higher while gold prices fell by 0.4%, finishing the week at $1,254ounce. 
Currencies
  • The US dollar depreciated against major currencies over the week. The US dollar fell 0.8% against sterling, ending the week at $1.45/£. The US dollar weakened 1.2% against the euro finishing the week at $1.13/€. The Japanese yen strengthened 1.9% against the US dollar ending the week at ¥111.40/$.
 Economic Releases 
  • US industrial production fell in February by 0.5%, disappointing after having risen 0.8% in January as utilities and mining both had sizable falls in production. Consumer prices fell in February, taking headline annual inflation from 1.4% to 1.0% as energy prices decreased although expectations were for a slightly larger fall to 0.9%. Core (ex food and energy) inflation climbed from 2.2% to 2.3% when analysts had predicted no change. Real weekly earnings grew by just 0.6% over the 12 months to February, down from January’s 1.1% growth rate. The NAHB housing market index stayed flat at 58, after hitting a 9 month low with its previous reading. In more positive news, the Empire Manufacturing index rose from -16.6 to 0.6 (when analysts had predicted a rise of less than half that amount to -10.5) and retail sales, ex auto and gas, grew 0.3% in February after falling 0.1% the previous month.
  • In the Eurozone, releases were also relatively light, but encouraging. Industrial production surprised positively, growing by 2.8% over the 12 months to January after the previous month’s fall of -0.1%. Analysts had predicted an uptick in production, but by a much smaller 1.6%. Construction output also grew by 6.0%, compared to the previous month’s 0.4%. Employment within the Eurozone grew by 1.2% over 2015, up marginally from the third quarter’s annual growth of 1.1%. February’s consumer price data was unchanged at the headline level (-0.2%), but the core reading ticked up by 0.1% to 0.8%.
  • Japanese economic data was mixed over the week. The Bank of Japan left monetary policy unchanged in the March meeting but downgraded its view on the economy. Machine tool orders rose sharply by 8.4% over the twelve months to January ahead of economist’s forecasts of a fall of 3.8%, the rise largely driven by a spike in iron/steel orders. Trade data for February continued to be negatively impacted by the strengthening yen, but showed an improvement on the previous month. Exports fell in February at an annual rate of 4%, while imports fell by 14.2% over the same time period, less than the expected fall of 15.8%. This led to an adjusted trade surplus of ¥166.1b in February, less than consensus expectation of ¥235.0b but better than the ¥645.9b deficit in January. Nationwide department sales rose marginally by 0.2% over the 12 months to February but sales in the capital were stronger and rose by 2.7% over the same period.
  • Chinese economic data was weak. Industrial production grew by 5.4% over the year to February, down from 6.1% in January and behind expectations of 5.6%. February’s annual retail sales growth was also 0.8% behind expectations at 10.2%, falling from 10.7%. Foreign direct investment was marginally ahead of expectations at 1.8% over the 12 months to February, but down considerably from the 3.2% in January.
Source: Aon 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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