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Aon Retirement and Investment Blog

Weekly Update - 09 May 2016

NEW INTELLECTUAL CAPITAL

  • Global Retirement Update. This update summarizes recent legislative developments and trends related to retirement and financial management and highlights recently passed and pending legislation that may require employers to take action to comply with new rules or review existing plans.
  • Sample Annuity Pricing Interest Rates. This update provides sample annuity pricing interest rates as of 31 March 2016.
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version is also available.

UPCOMING EVENTS 

  • 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 MOVESWeek Ending May 6, 2016
Equities

  • Global equities ended lower in a holiday shortened week driven by weak economic data and mixed corporate earnings reports, but falling commodity prices also contributed. The MSCI World Index fell 1.5% over the week underperforming S&P 500 which fell by 0.3%.On a year to date basis, S&P 500 has outperformed MSCI World (1.4% vs. -0.1%).
  • US Small Cap stocks underperformed Large Cap stocks as the Russell 2000 fell 1.4% over the week compared to 0.3% fall by S&P 500. On a year to date basis, Large Cap stocks have outperformed Small Cap stocks (1.4% vs. -1.4%). Growth stocks outperformed the Value stocks last week (-0.1% vs. -0.7%) as measured by MSCI USA indices. However, Value stocks have outperformed Growth stocks, returning (2.6% vs. -0.5%) on a year to date basis. 
Bonds
  • 10 year and 30 year US Treasury yields both fell by 5bps, ending the week at 1.78% and 2.63% respectively as global growth concerns made investors risk averse.
  • 20 year TIPS yields rose by 3bps to 0.45% over the week. 20 year Breakeven were 9bps down at 1.53%.
  • Credit spread widened over the week. The Barclays Capital Long Credit Index spread over treasury yields rose by 6bps to 211bps and the Merrill Lynch US Corporate Index spread ended the week 4bps higher at 156bps. The US high yield bond spread over US treasury yields was 24bps higher at 648bps while the spread of USD denominated EM debt over US treasury yields finished the week 12bps higher at 401bps.
Commodities
  • The S&P GSCI fell by 2.9% in USD terms over the week. The energy sector fell by 3.7% as the price of WTI crude oil fell by 3.0% to USD 45/BBL. Industrial metals fell by 4.5% over the week as copper prices decreased by 4.7% to $4,826/MT, amid manufacturing slowdown across the regions. Agricultural prices were 2.9% lower and gold prices fell by 0.2%, finishing the week at $1,290/ounce.
Currencies
  • The US dollar appreciated against the major currencies over the week with the exception of the Japanese Yen. The US dollar appreciated 1.5% against sterling, ending the week at $1.44/£ as weak UK economic data weighed over the sterling. The US dollar strengthened 0.3% against the euro finishing the week at $1.14/€. The Japanese yen continued its appreciation against the US dollar to touch an 18-month high, ending the week at ¥107/$.
Economic Releases
  • The heavily watched US monthly jobs report was released last week, with nonfarm payrolls increasing by 160,000 in April. Though still a healthy increase in jobs, this is the lowest increase seen since September 2015 and came in below the consensus expectation of 200,000. The unemployment rate also marginally disappointed, remaining at 5.0% when a small fall was expected. The April ISM indices were mixed; the manufacturing index fell to 50.8, which was disappointing, but the non-manufacturing composite rose to 55.7, beating the consensus estimate. Quarterly productivity growth was estimated at -1.0% over Q1, which allowed unit labor costs to grow by 4.1% over the same period. Lastly, the IBD/TIPP economic optimism index rose to 48.7 in May, punching well above the consensus expectation, boding well for some better data over the summer. 
  • In Europe, the PMIs were prominent data releases as well, although these were final revisions to earlier estimates so consensus expectations proved to be fairly accurate. The manufacturing PMI was 51.7 in April, while the services PMI was 53.1. This resulted in a composite PMI of 53, indicating moderate positive growth in Europe. The pattern was similar in Germany, where the manufacturing, services and composite PMIs were 51.8, 54.5 and 53.6 respectively. On a weaker note, Europe-wide retail sales were reported to have contracted by 0.5% in March versus expectations of a smaller fall of 0.1%.
  • It was a light week for economic releases in Japan due to Golden Week holidays, but what little data was released was not encouraging. The services PMI fell to 49.3 in April from 50.0, which pushed the composite PMI down to a two-year low of 48.9.
  • In China, the Caixin PMIs for April were the major releases last week. The manufacturing sector index fell a touch to 49.4 from 49.7 (consensus was expecting 49.8). Similarly, the service sector index fell from 52.2 to 51.8, resulting in a composite index of 50.8, down from 51.3. Chinese economic growth remains moderate but the authorities hope that the recently announced package of stimulus measures will have a positive impact on activity. We will have to await confirmation in the dataflow of this in the coming months. 
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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