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Aon Retirement and Investment Blog

Weekly Update - 28 November 2016 (UK/Europe)


  • Demonetisation of ₹500 and ₹1000 Indian banknotes.  The Government of India stopped using ₹500 and ₹1000 banknotes as legal tender on 9 November 2016.  The immediate impact is softening of rates – few banks including India’s largest bank have already announced  cut in deposit rates by up to 190 bps.  This note describes the impact of demonetisation on employee benefits liabilities and exempt provident funds.
  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version of the November 10th issue is also now available.


  • Global equities rallied last week as markets gained confidence in the US economy following strong economic data, strengthening the case for the US Federal Reserve (Fed) to raise interest rates in December. The MSCI AC World Index rose 1.4% in local currency terms as all regions posted positive returns. Japan was the best performing market in local currency terms (2.7%) driven by continued weakness in the yen. This dragged down the returns in sterling terms to -0.6%, making Japan the worst performing market in sterling terms. Developed Europe ex UK was the worst performing region in local currency terms as it returned the least at 0.7%. Developed Asia Pacific ex Japan was the best performing region in sterling terms (1.5%) due to a rise in commodity prices.
  • UK gilt yields fell across all maturities. The 10 year UK gilt yield fell by 6bps to 1.42% and the 20 year UK gilt yield fell by 3bps to 1.96%. The 10 year US treasury yield rose by 3bps to 2.37%. European government bond yields were mixed. German bund yields fell by 5bps to finish the week at 0.16% whilst French government bond yields rose by 3bps, ending the week at 0.78%. Greek government bonds continued to rally with yields falling by 19bps to 6.92% on the hopes of debt relief.
  • The UK 20 year index-linked yield was unchanged at -1.50% and the Over 5 year index-linked yield fell by 1bp to -1.55%. 20 year breakeven inflation fell by 1bp to 3.46%.
  • Credit spreads were mixed over the week. The US high yield bond spread over US treasury yields ended the week 20bps lower at 464bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp higher at 361bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) rose by 1bp at 125bps.
  • The S&P GSCI rose by 1.5% in USD terms over the week. The energy sector rose by 0.9% as the price of Brent crude oil rose 1.9% to USD 47/BBL, driven by an expected cut in oil production from OPEC at the end of the month. Industrial metals rose sharply by 7.4% as copper prices increased by 8.4% to $5,865/MT. Agricultural prices rose by 0.5% and the gold price fell by 1.9% to $1,185/ounce.
  • Sterling appreciated against all major currencies. The US dollar depreciated by 1.1% against sterling, ending the week at $1.25/£, on the back of UK Prime Minister Theresa May’s comments on the Brexit transition deal. The euro weakened by 0.8% against sterling, finishing the week at €1.17/£. The Japanese yen depreciated by 2.1% against the US dollar, ending the week at ¥113.00/$.


  • In the US, initial jobless claims rose from a revised 233k to 251k, close to survey forecasts of 250k. Claims have remained below 300k for 90 consecutive weeks – the longest run since 1970, indicating a strong labour market. The finalised figure for the University of Michigan Consumer Sentiment Index sentiment rose to 93.8 from 91.6 for November. This is the largest move since May as populist policies proposed by President-elect Trump have provided a feel-good factor for US consumers. There were positive releases elsewhere, as the number of orders for durable goods posted its largest jump in a year, increasing by 4.8% in October, above consensus estimates of a more modest 1.7% increase. September's figure was also revised up.
  • In the UK, the Public Sector Net Borrowing (PSNB ex Banking Groups) fell from £9.7bn to £4.8bn in October, helped by a jump in corporation tax receipts. Analysts were expecting borrowing to be higher at £6.0bn. However, this release came in the same week as the government’s Autumn Statement which outlined a deteriorating fiscal outlook post the Brexit decision. Business investment in Q3 beat consensus estimates of a 1.0% decline and rose 0.9%. However, over the last year, business investment provided a negative contribution to growth, falling by 1.6%.
  • In the Eurozone, provisional figures for the Purchasing Managers’ Index (PMI) were released. The manufacturing sector expanded more into growth territory as the index rose from 53.5 to 53.7, beating analysts' expectations of 53.3. The Services PMI beat forecasts considerably as it soared from 52.8 to 54.1, well ahead of the 52.9 level expected. The overall PMI composite reached an 11-month high of 54.1, showing that the Eurozone's recovery seems to be holding up despite ongoing political uncertainty. The Munich-based Ifo Economic Institute's business climate survey in Germany remained at its two and a half year high of 110.4 in November. Analysts were expecting a small rise to 110.5.
  • Japanese economic data was mixed last week. After several months of deflation, headline CPI inflation returned to positive territory as prices rose 0.1% over the year to October. Core-core inflation (excluding both food and energy) rose 0.2% over the same period. Manufacturing activity in Japan grew at a slightly slower pace than the previous month as the preliminary manufacturing PMI for November marginally fell to 51.1 from 51.4. The stronger yen over the last year and sluggish foreign demand weighed on Japanese exports, which fell by a further 10.3% in October. This marked the 13th consecutive month of falling exports. However, large falls in imports over the year (-16.5%), led to a ¥116bn widening of Japan's trade balance to ¥474bn.
  • It was a very quiet week for economic releases in China. Industrial profits rose by 9.8% in October, which continued the strong rebound after losses in the sector in 2015. There were further signs of a strengthening economy as business confidence, gauged by the MNI Business Sentiment Indicator, increased to 53.1 in November from 52.2 in October.

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. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.

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