We’ve moved! Click here to view our most recent content!

Set Regional Preference
Required Field*
Set geographic preferences to highlight topics of greatest interest of you, written in your base currency.


Aon Retirement and Investment Blog

Weekly Update - 21 March 2016 (UK/Europe)


  • 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. 
  • 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 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 AC world rose 0.8% in local currency and 0.6% in sterling terms. Emerging markets was the best performing region in both local currency (2.3%) and sterling terms (2.4%) as the increase in commodity prices and a strengthening of regional currencies against the US dollar pushed the markets higher. Japan continued to be the worst performing region in both local currency (-1.4%) and sterling terms (-0.3%) as the Bank of Japan (BOJ) downgraded its view on the economy and yen strength hurt exporters.
  • UK nominal gilt yields fell across all maturities, following other major government bond yields, on the back of prospects of continued lower interest rates following the comments from the Fed. The 10 year UK gilt yield was 13bps lower at 1.45% and the 20 year UK gilt yield fell by 8bps to 2.15%. The 10 year US treasury yield fell by 11bps, finishing the week at 1.87%. European government bond yields fell across the region. German bund yields fell by 6bps to finish the week at 0.22% and French government bond yields fell by 5bps to finish the week at 0.48%.
  • UK real yields fell over the week. The 20 year real yield fell by 5bps to -0.93% and the Over 5 year real yield finished the week 3bps lower at -1.01%. 20 year breakeven inflation fell by 3bps to 3.02%.
  • Credit spreads tightened over the week. 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. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 5bps at 153bps.
  • The S&P GSCI Index rose by 1.2% in USD terms. The energy sector rose by 2.0% as the price of Brent and WTI crude oil both rose by 2.5% finishing the week at USD 42/BBL and USD 39/BBL respectively. 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.
  • Sterling strengthened against the US dollar, but weakened against the euro and the yen. The US dollar depreciated by 0.8% against sterling, ending the week at $1.45/£. The euro rose by 0.4% against sterling, finishing the week at €1.29/£. The Japanese yen appreciated against the US dollar by 1.9%, ending the week at ¥111.40/$.
  • 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.
  • UK economic data releases were sparse over the week, with most releases centred on employment data, which was mixed. January’s unemployment rate remained at 5.1% but the 3month change in employment to the same date disappointed (116k) as analysts expected more job creation (144k). However, the fall in jobless claims for February was double what was expected at -18.0K. During the week, the Chancellor George Osborne made his annual budget speech to Parliament in which the office of budget responsibility’s projected economic growth figures for the UK were revised downwards for the next 5 years. There was also an announcement of further austerity measures with the Chancellor targeting a budget surplus in 2020.
  • 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 BoJ 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.

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.

Share:Add to Twitter Add to Facebook Add to LinkedIn   Print