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Aon Retirement and Investment Blog

Weekly Update - 4 November 2016

NEW INTELLECTUAL CAPITAL

  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health.

MARKET MOVES - Week Ending November 04, 2016

Equities
  • Global equity markets sold off sharply over the week driven by falling energy prices and uncertainties around the outcome of the upcoming election in the US. The MSCI World Index fell 1.8%, marginally outperforming S&P 500 which fell 1.9% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (3.9% vs. 2.2%).
  • US Large Cap stocks marginally outperformed Small Cap stocks as the Russell 2000 fell 2.0% over the week whereas the S&P 500 fell 1.9%. On a year to date basis, Small Cap stocks have underperformed Large Cap stocks (3.7% vs. 3.9%). Value stocks outperformed Growth stocks last week (-1.7% vs. -2.1%) as measured by MSCI USA indices. On a year to date basis, Value stocks have outperformed Growth stocks, returning (6.5% vs. 1.0%).
Bonds
  • 10 year US Treasury yield fell by 7bps to 1.78% and 30 year US Treasury yield fell by 5bps to 2.56% over the week.
  • 20 year TIPS yields fell by 2bps to 0.37% over the week. 20 year Breakeven fell by 4bps to 1.56%.
  • Credit spreads rose over the week. Barclays Capital Long Credit Index spread over treasury yields rose by 5bps to192bps and the Merrill Lynch US Corporate Index spread rose by 4bps to 141bps over the week. The US high yield bond spread over US treasury yields ended the week 44bps higher at 520bps. The spread of USD denominated EM debt over US treasury yields finished the week 13bps higher at 350bps
Commodities
  • The S&P GSCI fell by 5.6% in USD terms over the week. The energy sector fell by 9.3% as the price of WTI crude oil fell 9.5% to USD 44/BBL, as data indicated that US crude oil inventories rose sharply and concerns rose about tightening US election polls. Industrial metals rose by 1.6% as copper prices increased by 3.0% to $4,978/MT. Agricultural prices fell by 1.1% while gold prices rose by 2.7% to $1,304/ounce.
Currencies
  • The US dollar depreciated against all the major currencies over the week. The US dollar fell 3.3% against the sterling, ending the week at $1.25/£, as Sterling rose on the back of reduced expectation for a further rate cut by the BOE and the high court ruling requiring parliamentary approval for initiating Brexit procedures US dollar weakened 1.8% against the euro, finishing the week at $1.11/€. The Japanese yen rose by 2.3% against the US dollar, ending the week at ¥103.02.
ECONOMIC RELEASES
  • In the US, there was a particular focus on labor market data. Nonfarm payrolls increased by 161k which was slightly below consensus estimates of 173k and the previous increase of 191k. The unemployment rate did, however, meet analyst forecasts as the rate fell to 4.9% - the lowest level since February 2008. The October Jobs report also revealed an increase in annual wage growth, measured by the year-on-year change in average hourly earnings, which rose by 2.8%; the highest level since June 2009. The increase was above survey estimates of 2.6% growth. There was a positive revision away from the jobs market with the Markit US Manufacturing Purchasing Managers' Index (PMI) increasing to 53.4 from 53.2. The reading was also the best recorded for the year.
  • In the Eurozone, advance figures for seasonally adjusted GDP were released. The annual increase in GDP as at the end of Q3 was estimated to be 1.6% and the quarterly increase was estimated at 0.3%; both measures matching consensus estimates. The CPI inflation estimate was 0.5%, up from 0.4% in the previous month. Advance Core CPI inflation (which excludes volatile food and energy prices) was in line with expectations at 0.8%. In October's final PMI numbers, services were unexpectedly revised down from 53.5 to 52.8 whilst figures for the manufacturing sector surprisingly rose from 53.3 to 53.5. The overall composite, however, fell from 53.7 to 53.3. In Germany, the number of people unemployed fell by 13k, well ahead of the expected 1k fall.
  • Japanese economic data was mixed. The Bank of Japan kept the monetary policy unchanged. The Nikkei Japan Services PMI returned to expansionary territory in October by rising to 50.5 from the previous reading of 48.2. This was predominantly driven by an increase in new orders. This also led to the Nikkei Japan Composite PMI rising to 51.3 in October from 48.9. Industrial production stalled over the twelve months to September rising by only 0.9% which fell short of the consensus estimates for a rise of 1.9% and a previous increase of 4.5%.
  • The latest PMI figures from China pointed towards a stabilizing economy. The Caixin China Services PMI rose to 52.4, growing at the strongest pace in four months. A similar increase was seen for the manufacturing sector with the Caixin China Manufacturing PMI beating analyst expectations, rising to 51.2 compared to consensus estimates of 50.1. There was also an improvement in the current account balance over the third quarter, as provisional figures showed the balance rising to $71.2 billion to the end of September from $64.1 billion. 
Sources: 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. 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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