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Aon Retirement and Investment Blog

Weekly Update - 02 May 2017


  • U.S. Discount Rate Update as of March 31, 2017. Average discount rates increased by 5 basis points in March as corporate spreads widened at the increased uncertainty of policy reforms by the new U.S. administration. The Fed increased the Fed Funds target rate by 25 basis points and Treasury rates rose slightly across the curve. In April, rates have decreased by 7 basis points through Wednesday, April 26. The average plan sponsor’s discount rate has now decreased by 12 basis points in 2017.
MARKET MOVES - Week Ending April 28, 2017

  • Global equity markets rose over the week as Emmanuel Macron passed through the first round of presidential elections in France, providing relief from the scenario of a messy second round, and also following solid corporate earnings reports. The MSCI World Index rose by 2.0% over the week, outperforming S&P 500 which rose 1.5% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (8.2% vs. 7.2%).
  • US Small Cap stocks performed at par with Large Cap stocks as both the Russell 2000 and S&P 500 rose 1.5% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (7.2% vs. 3.6%). Growth stocks outperformed Value stocks last week (2.0% vs. 1.1%) as measured by MSCI USA indices. On a Year to date basis, Growth stocks have outperformed Value stocks (11.6% vs. 3.4%).
  • 10 year US Treasury yield rose by 3bps and the 30 year US Treasury yield rose by 5bps to 2.28% and 2.95% over the week.
  • 20 year TIPS yield fell by 4bps to 0.49% over the week. 20 year Breakeven rose by 7bps to 1.89%.
  • Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index fell by 3bps each to end the week at 167bps and 122bps respectively. The US high yield bond spread over US treasury yields fell by 22bps to 375bps. The spread of USD denominated EM debt over US treasury yields finished the week 11bps lower at 303bps.
  • The S&P GSCI marginally fell by 0.1% in USD terms over the week. The energy sector fell by 1.2% as the price of WTI crude oil declined by 0.7% to $49/BBL as the restart of oil production in Libya weighed on markets. Industrial metals rose by 1.1% as copper prices increased by 2.1% to $5,711/MT. Agricultural prices rose by 0.5% whilst the gold price fell by 1.4% to $1,268/ounce.
  • The US dollar depreciated against major currencies (except for the yen) over the week. The US dollar depreciated by 1.3% against sterling, ending the week at $1.29/£. US dollar weakened by 1.9% against the euro, finishing the week at $1.09/€. The Japanese yen weakened by 2.1% against the US dollar, ending the week at ¥111.47/$.
Economic Releases
  • Lacklustre macroeconomic data dominated the US releases last week as the economy grew at its slowest rate in nearly three years. Annualised GDP growth of 0.7% over the first quarter of 2017 fell short of expectations of 1.0%. Consumer spending slowed considerably over the first quarter, increasing by only 0.3% which was down from the 3.5% growth in the previous quarter. The slowdown in consumer spending was also accompanied by a fall in consumer confidence. The consumer confidence index fell by more than expected to 120.3 from a 16-year high of 124.9. There was further disappointing news with new orders for capital goods rising by only 0.7%, again short of the expected 1.3% increase.
  • In the Eurozone, the consumer price inflation estimate for April was 1.9%, up from 1.5% in the previous month and 0.1% above expectations. Meanwhile the figure for core inflation rose to its highest level since 2013 at 1.2%, up from 0.7% in March and ahead of expectations of 1.0%. Economic confidence was also up in the region as the latest survey by the European Commission reached its highest level since September 2007. Moreover, it came in above expectations by 1.8 points and rose to 109.6 from 108.0 in the previous month. The European Central Bank's main refinancing rate and deposit facility rate were both maintained, as expected, at 0.0% and -0.4% respectively.
  • Japanese economic data was fairly mixed last week. Inflation remained at low levels in a week where the Bank of Japan left monetary policy unchanged. Headline consumer price inflation rose to 0.2% over the year to March but was less than the consensus estimate of 0.3%. Core inflation, which excludes fresh food and energy, fell by 0.1% which was worse than expectations of no changes to prices. The labour market strengthened in March as the jobless rate remained at 2.8% whilst the job-to-applicant ratio rose to 1.45; the highest level in 26 years. Retail sales unexpectedly rose by 0.2% in March, far better than a 0.3% forecast fall. The provisional release for industrial production showed an increase of 3.3% over the year to March which was below estimates of 3.9% growth.
  • There was little economic data released in China last week. Manufacturing and non-manufacturing PMI data slipped to 51.2 and 54.0 respectively, but both sectors remain in expansionary territory. The Conference Board's Leading Economic Index increased by 0.9% in March to 164.2. The Coincident Economic Index rose by 1.2% to 164.0. Meanwhile, profits in China's industrial sector grew by 23.8% in March from a year earlier. Profits increased on the back of a construction boom which helped boost sales and prices of building materials.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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