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Aon Retirement and Investment Blog

Weekly Update - 7 March 2016 (UK/Europe)


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


  • 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 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 AC World Index rose by 3.2% in local currency terms. However, sterling strength pushed down the returns to UK investors to 1.3%. Developed Asia Pacific ex Japan was the best performing region in both local currency (5.0%) and sterling terms (4.8%) as Australian equities rose on the back of strong GDP and trade data. The UK returned the least in local currency terms (2.0%), while the US was the worst performing region in sterling terms (0.2%).
  • UK nominal gilt yields rose across all maturities, with the exception of the very longest durations, in tandem with government bond yields in other major developed markets. The 10 year UK gilt yield was 9bps higher at 1.49% and the 20 year UK gilt yield rose by 2bps to 2.20%. The 10 year US Treasury yield rose 12bps, finishing the week at 1.88% as better than expected employment data pushed yields higher. European government yields were mixed with spreads narrowing between core and peripheral government bond yields.  German bund yields finished the week 9bps higher at 0.24% and French government bond yield rose by 6bps to 0.57%. A recovery in risk appetite pushed the yields of peripheral government bonds lower. Greek government bond yields fell by 55bps to 9.75% and Portuguese government bonds finished the week 5bps lower at 2.96%.
  • UK real yields fell over the week. The 20 year real yield fell by 3bps to -0.83% and the over 5 year real yield ended the week 3bps lower at -0.93%. 20 year breakeven inflation rose by 7bps to 2.96%.
  • Credit spreads fell over the week as improving sentiment supported riskier assets. 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. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 7bps at 168bps.
  • 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.
  • Sterling appreciated against major currencies over the week, correcting some of the recent sharp depreciation triggered by Brexit fears. The US dollar weakened by 2.5% against sterling ending the week at $1.42/£ and the euro fell by 1.8% against sterling, finishing the week at €1.29/£. The Japanese yen fell marginally by 0.1% against the US dollar, ending the week at ¥113.81/$.
  • The US labour 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 UK, economic releases disappointed. February’s Markit/CIPS manufacturing PMI fell from 52.9 to 50.8 when it was expected to just fall to 52.3. The services PMI number was even less encouraging, falling sharply from 55.6 to 52.7, disappointing analysts who had anticipated a much smaller fall (to 55.1). UK services growth for February is the weakest in nearly three years, with employment growth within the service sector at a two-and-a-half year low. This, combined with a disappointing construction PMI, led the composite PMI to significantly disappoint the market, falling 3.4 to 52.8, when a fall of only 0.5 was expected. Mortgage approvals increased from 71k to 75k, ahead of expectations.
  • 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. Labour 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.

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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