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Aon Retirement and Investment Blog

Weekly Update - 7 March 2016

NEW INTELLECTUAL CAPITAL

  • RadarProvides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version is also available. 
  • Raising Your Corpus from the Dead. This paper from the US investment consulting practice focuses on spending policy development and return enhancing opportunities to better position not-for-profits for corpus growth while maintaining purchasing power.

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 (week ending March 4, 2016)
Equities

  • Global equities continued to rally. They rose sharply over the week, driven by additional stimulus measures by the People’s Bank of China (PBOC) alongside rising oil and commodity prices. The MSCI World Index rose 3.5% over the week and outperformed the S&P 500 which rose 2.7%. On a year to date basis, MSCI World Index has underperformed S&P 500 (-2.9% vs. -1.7%).
  • US Small Cap stocks outperformed Large Cap stocks as the Russell 2000 rose 4.3% over the week compared to 2.7% returned by S&P 500. However, on a year to date basis Small Cap stocks have underperformed Large Cap stocks (-4.5% vs. -1.7%). Value stocks outperformed the Growth stocks last week (3.0% vs. 2.5%) as measured by MSCI USA indices. Growth stocks have underperformed Value stocks, returning (-3.6% vs. -0.6%) on a year to date basis.
Bonds
  • 10 year US Treasury yields rose by 11bps to 1.87% over the week and 30 year US Treasury yields rose by 5bps to 2.69% as better than expected employment data pushed yields higher.
  • 20 year TIPS yields fell by 4bps to 0.67% over the week. 20 year Breakeven were 12bps higher at 1.43%.
  • Credit spreads fell over the week as improving sentiment supported riskier assets. The Barclays Capital Long Credit Index spread over treasury yields fell by 12bps to 246bps and the Merrill Lynch US Corporate Index spread ended the week 16bps lower at 195bps. The US high yield bond spread over US treasury yields was 72bps lower at 708bps and the spread of USD denominated EM debt over US treasury yields finished the week 33bps lower at 424bps.
Commodities
  • The S&P GSCI Index rose by 4.9% in USD terms over the week as commodity prices increased across the board. More talks have been planned with OPEC and non-member producers, such as Russia, to discuss capping production levels and this led the energy sector to rise by 7.3%. The price of Brent crude oil rose by 5.4% to $38/BBL and WTI crude oil rose by 13.5% to finish the week at $36/BBL. Industrial metals prices rose by 5.1% over the week as copper prices increased by 6.8% to $5,037MT. Agricultural prices were 1.8% higher, and the gold prices rose by 4.6%, finishing the week at $1,271/ounce.
Currencies
  • The US dollar depreciated against major currencies over the week. The US dollar fell 2.5% against sterling, ending the week at $1.42/£. The US dollar weakened 0.7% against the euro finishing the week at $1.10/€. The Japanese yen strengthened 0.1% against the US dollar ending the week at ¥113.81/$.
Economic Releases
  • The US labor market remains strong; nonfarm payrolls increased by 242,000 in February, almost 50,000 higher than expected. This allowed the unemployment rate to remain at its post-crisis low of 4.9% even as the participation rate picked up from 62.7% to 62.9%. However, hourly earnings growth over the twelve months to February dipped slightly to 2.2% when analysts had expected growth to remain at 2.5%. The US manufacturing ISM index rose to 49.5 in February from 48.2, higher than expected but still below the neutral 50 mark at which manufacturing activity is stable. This is in contrast with the Markit manufacturing purchasing managers’ index (PMI), which fell in February to a 28-month low. More disappointing was the IBD/TIPP economic optimism index, which fell to 46.8 in March from 47.8 when the consensus was hoping for a flat reading.
  • In the Eurozone, economic data was mixed. The final Eurozone composite PMI was upgraded from 52.7 to 53.0 when it was expected to be unchanged, with both of the underlying manufacturing and services sub-indices upgraded. However, the composite PMI still showed a slowdown from January’s reading of 53.6. Service growth slowed to a 13-month-low while manufacturing growth is at a 12-month-low. Inflation figures fell by more than expected for both the headline (0.3% to -0.2%) and core figures (1.0% to 0.7%). In slightly more encouraging news, annual retail sales to January rose 2.0%, ahead of expectations, and December’s figure was revised up from 1.4% to 2.1%. The unemployment rate fell marginally to 10.3% when it was expected to remain flat.
  • Japanese economic data also continued to have a mixed tone. Labor market data continued to be strong. The unemployment rate fell to 3.2% in January from 3.3% in December. The Job to applicant ratio continued to increase, rising to 1.28, the highest level since December 1991. Real wages rose by 0.4% over the twelve months to January, an improvement from 2015’s marginal wage recession. However, consumption data was generally weak; retail trade fell by 0.1% over the twelve months to January against the consensus expectation of an increase of 0.1%. Household spending fell by 3.1% over the same period. Company sales and profits fell by 2.7% and 1.7% respectively in the fourth quarter of 2015. Industrial output for the month of January rose by 3.7%, ahead of the consensus estimate of 3.2%, but the yearly pace to January showed a contraction of 3.8%. The Japanese services PMI fell to 51.2 in February from 52.4 in January which, coupled with a decline in the manufacturing PMI, pushed the composite PMI down to 51.0 in February from 52.6 in January.
  • In China, both the official and Caixin manufacturing PMIs for February disappointed. The official measure fell from 49.4 to 49.0 and the Caixin index fell from 48.4 to 48.0 when both were expected to stay the same.

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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