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Aon Retirement and Investment Blog

Weekly Update - 03 May 2016



  • The DC Decumulation Challenge: A Global View.  While the growth and development of defined contribution plans vary from market to market, every country and plan provider is challenged with how best to guide plan participants in converting their accumulated plan savings into income that will support them in retirement. This webinar will consider the objectives and typical trade-offs involved, and provide a truly global view into how different countries are approaching this challenge, and provide real-time insights from our global Aon Hewitt Thought Leaders and clients on how they are thinking about and taking on this challenge. This webinar will provide food for thought that will help you navigate the optimization of plan features that efficiently address decumulation, from plan design through to retirement readiness. Register today by selecting the session you would like to attend.

MARKET MOVES (as of April 29, 2016)

  • Global equity markets fell over the week driven by weak US GDP growth data and disappointing corporate earnings reports. The MSCI World Index fell 0.8% over the week and outperformed the S&P 500 which fell by 1.2%. However, on a year to date basis, S&P 500 has outperformed MSCI World (1.7% vs. 1.4%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.4% over the week compared to 1.2% fall by S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (1.7% vs. 0.0%). Growth stocks underperformed the Value stocks last week (-1.7% vs. -0.8%) as measured by MSCI USA indices. However, Value stocks have outperformed Growth stocks, returning (3.3% vs. -0.4%) on a year to date basis. 
  • 10 year US Treasury yields fell by 6bps and 30 year US Treasury yields fell by 3bps, ending the week at 1.83% and 2.68% respectively.
  • 20 year TIPS yields fell by 11bps to 0.42% over the week. 20 year Breakeven were 7bps up at 1.62%.
  • Credit spread moves were mixed over the week. The Barclays Capital Long Credit Index spread over treasury yields fell by 1bp at 205bps and the Merrill Lynch US Corporate Index spread ended the week 3bps lower at 152bps. The US high yield bond spread over US treasury yields was 5bps lower at 624bps and the spread of USD denominated EM debt over US treasury yields finished the week 8bps higher at 389bps.  
  • The S&P GSCI rose by 3.6% in USD terms over the week. The energy sector rose by 4.4% as the price of Brent crude oil rose by 3.9% to USD 47/BBL, whilst WTI crude oil rose 7.5% to $46/BBL. WTI crude oil is now higher than at the start of the year. Industrial metals rose by 1.2% over the week as copper prices increased by 0.4% to $5,064/MT. Agricultural prices were 3.2% higher and gold prices rose by 4.1%, finishing the week at $1,292/ounce. 
  • The US dollar depreciated against the major currencies over the week. The US dollar fell 1.6% against sterling, ending the week at $1.46/£. The US dollar weakened 1.9% against the euro finishing the week at $1.15/€. The Japanese yen appreciated against the US dollar by 4.2%, ending the week at ¥107.00/$ following the BOJ’s monetary policy decision.
Economic Release
  • US first quarter GDP grew at an annualized rate of 0.5%, disappointing versus the consensus estimate of 0.7% and significantly down from 1.4% in Q4 2015. This was the worst quarterly growth rate in two years. March durable and capital goods orders also both disappointed versus their respective analyst estimates, with durable goods growing by 0.8% and capital goods growth remaining flat. Meanwhile, the core PCE index, the Federal Reserve’s preferred measure for assessing underlying inflationary pressures, rose by 1.6% over the year to March, slightly down from the previous month but in line with analyst forecasts. The Markit services Purchasing Managers’ Index (PMI) rose to 52.1, just beating analysts’ forecasts in April, and bringing the composite PMI index up to 51.7. Lastly, consumer confidence fell to 94.2 in April from 96.1 when a much smaller fall was expected.
  • There were many economic data releases in the Eurozone over the week. The first quarter GDP estimate was released and was slightly more encouraging than in the US and the UK. The economy grew by 0.6% over the three months to March, double the previous quarter and ahead of estimates of 0.4%. Growth on an annual basis was 1.6%, in line with Q4 2015. Inflation is still struggling to gain any clear momentum; headline inflation is estimated to have fallen to -0.2% in April, with core inflation falling by 0.3% to 0.7%. The unemployment rate fell from 10.4% to 10.2%, which was slightly better than analysts had expected but the rate still remains high relative to the majority of developed economies. Industrial confidence improved, as did confidence in the service sector with the overall business climate indicator edging up, despite not quite reaching the level economists predicted.
  • Japanese economic data had a mixed tone over the week. Japan technically entered deflation as CPI inflation was -0.1% over the year to March, following yen strength. Core CPI, which excludes fresh food and energy, rose 0.7% over the same period, slightly lower than the analysts’ expectations of a 0.8% rise. The unemployment rate edged lower to 3.2% in March and the job-to-applicant ratio further rose to 1.30. Industrial production expanded by 3.6% in March, ahead of the consensus estimate of 2.8%. However, consumption data was weak; retail trade fell by 1.1% over the twelve months to March and household spending fell by 5.3% over the same period, in contrast to the 1.2% increase seen the previous month. Lastly, small business confidence fell to 47.8 from 48.8 in April, below economists’ expectation of 48.5.
  • In China, industrial profits rose by 11.1% over the year to March, well above the 4.7% fall seen the previous month. On the other hand, consumer sentiment fell to 117.8 in April from 118.1 in March.
Source: 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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