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Aon Retirement and Investment Blog

Weekly Update - 23 May 2016 (UK/Europe)


  • Global Retirement Update for April 2016. 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.
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health.
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  • Global equity markets ended the week on a positive note in local currency terms despite a hawkish statement from the US Federal Reserve (Fed) weighing over markets. The MSCI AC World Index rose by 0.5% in local currency terms. However, sterling strength pushed down returns in sterling terms to -1.0%. Japan continued to be the best performing region in local currency terms (1.7%), driven by better than expected GDP data and yen weakness. The UK was the best performing region in sterling terms (0.6%). Emerging markets was the worst performing region in both local currency (-0.4%) and sterling terms (-2.4%).
  • UK nominal gilt yields rose across all maturities in tandem with the government bond yields in other major markets, on expectations of earlier interest rate rises by the Fed. The 10 year UK gilt yield rose 8bps to 1.46% while the 20 year UK gilt yield rose by 7bps to 2.19%. The 10 year US treasury yield rose by 13bps to 1.85%. European government bond yields were mixed. German bund yields rose 4bps, ending the week at 0.17% and French bond yields rose by 3bps to 0.51%.
  • UK real yields rose over the week. The 20 year real yield rose by 4bps to finish the week at   -0.83% and the yield on the Over 5 Year Real index rose by 2bps to -0.88%. 20 year breakeven inflation rose by 4bps to 2.95%.
  • Credit spreads were mixed over the week. The US high yield index spread over US treasury yields continued to fall, ending 19bps lower at 622bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp higher at 398bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) was lower by 1bp at 141bps.
  • The S&P GSCI rose by 1.5% in USD terms over the week. The energy sector rose by 3.0% as the price of Brent crude oil was up 2.0% to USD 49/BBL. Industrial metals fell by 0.5% over the week as copper prices decreased by 1.0% to $4,589/MT. Agricultural prices were 0.2% higher and gold prices fell 1.4%, finishing the week at $1,253/ounce.
  • Sterling strengthened across all major currencies as worries over Brexit eased a little. The US dollar depreciated by 1.1% against sterling, ending the week at $1.45/£. The euro fell by 1.9% against sterling, finishing the week at €1.29/£. The Japanese yen depreciated by 1.2% against the US dollar, ending the week at ¥110/$.


  • In the US, economic data was fairly stable. CPI inflation rose to 1.1% for the year to April, up from 0.9% in March and in line with consensus, but the core measure, which excludes volatile food and energy components, fell slightly to 2.1%, but this was also anticipated by analysts. Real wages grew by 1.3% over the year to April, up from March’s growth rate of 1.1%, but still a slower rate than seen over the last couple of years, on average. The closely followed Philadelphia Fed Business Outlook index surprisingly fell to -1.8 in May from -1.6 previously, when the market was looking for an increase to 3. Whilst not always totally accurate, this index tends to give a good early steer on the trajectory of the key ISM index of manufacturing activity and a confirmation of this weakness in the ISM would have a negative impact on the markets. Meanwhile, housing market data was mixed; the NAHB housing market index remained at 58 when a small rise to 59 was expected, but housing starts grew by 6.6% over April, offsetting most of the fall seen the previous month. On the other hand, building permit growth, at 3.6% over the same period, was disappointing. Lastly, industrial production rose by 0.7% in April, which was a welcome development after analysts had penciled in growth of 0.3%, but March’s 0.9% fall remains at least not completely offset.
  • Last week’s data for the UK economy was broadly better than expected. The unemployment rate was unchanged for March, at 2.1% on the Claimant Count version and 5.1% on the internationally comparable ILO version. Meanwhile, average weekly earnings beat the consensus by growing 2% in the three months to March versus the same period last year (1.9% previously, 1.7% expected). Similarly, April retail sales data surprised with its strength. Sales excluding fuel grew by 1.5% month on month, compared with an expectation of 0.6% growth and the previous month’s 0.7% decline. Including fuel, sales grew by 1.3%. Finally, consumer price inflation slowed in April from 0.5% to 0.3%, whilst the core measure excluding food and energy, slowed from 1.5% to 1.2%. The debate and speculation surrounding the EU Referendum has begun to intensify, and the domestic dataflow has either lost impact temporarily or is being used for political ends.
  • The European calendar was rather light last week. Consumer price inflation was confirmed to have been -0.2% in April (the core measure was 0.7%), while the region wide trade surplus increased to 22.3bn euros in March from 20.6bn the month before, which was broadly in line with consensus estimates. Meanwhile, the German producer price index rose by 0.1% in the month of April but annual growth was unchanged at -3.1% year on year.
  • Japanese economic data had a mixed tone over the week. The preliminary estimate of Q1 2016 GDP growth was higher than expected (1.7% annualised quarter-on-quarter versus 0.3% expected), reversing a contraction in the previous quarter and avoiding technical recession; private consumption was better than expected, but the strong yen resulted in business spending falling by more than expected. More timely consumption data was weak, with nationwide department sales falling by 3.8% over the twelve months to April and sales in the capital falling by 1.5% over the same period. Machine orders rose 5.5% in March, beating the consensus estimate of a fall of 2.0%.
  • Chinese data was disappointing. Industrial production grew by 6.0% over the year to April, but this was below both consensus (6.5%) and March’s reading (6.8%), while retail sales over the same period were similarly disappointing (10.1% growth versus 10.5% in March and 10.6% expected).

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