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Aon Retirement and Investment Blog

Weekly Update - 14 November 2016


  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. A French version of the October 27th issue is also now available. 
Market Moves - Week Ending November 11, 2016
  • Global equity markets rose over the week as uncertainties over the outcome of the US Presidential elections ended with a surprising victory for the Republican candidate Donald Trump. The MSCI World Index rose 2.3%, underperforming S&P 500 which rose 3.9% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (7.9% vs. 4.5%).
  • US Small Cap stocks sharply outperformed Large Cap stocks as the Russell 2000 rose 10.3% over the week whereas the S&P 500 rose 3.9%. On a year to date basis, Small Cap stocks have outperformed Large Cap stocks (14.3% vs. 7.9%). Value stocks outperformed Growth stocks last week (4.4% vs. 3.2%) as measured by MSCI USA indices. On a year to date basis, Value stocks have outperformed Growth stocks, returning (11.1% vs. 4.3%).
  • 10 year and 30 year US Treasury yields rose sharply by 37bps to 2.15% and 2.94% respectively over the week on expectations of higher inflation.
  • 20 year TIPS yields rose by 16bps to 0.53% over the week. 20 year Breakeven rose by 21bps to 1.77%.
  • Credit spreads were lower over the week. Barclays Capital Long Credit Index spread over treasury yields fell by 8bps to 184bps and the Merrill Lynch US Corporate Index spread fell by 5bps to 136bps over the week. The US high yield bond spread over US treasury yields ended the week 23bps lower at 497bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp lower at 349bps.
  • The S&P GSCI fell by 1.1% in USD terms over the week. The energy sector fell by 2.1% as the price of WTI crude oil fell 1.5% to USD 43/BBL. Industrial metals rose sharply by 5.4% as copper prices increased by 11.3% to $5,541/MT. Expectations of vast spending in the US Infrastructure sector boosted metal prices. Agricultural prices fell by 1.7% and the gold price fell sharply by 5.8% to $1,229/ounce.
  • The US dollar depreciated against major currencies over the week except for the sterling. The US dollar fell 0.3% against the sterling, ending the week at $1.26/£. US dollar strengthened 2.4% against the euro on the back of reduced growth forecasts by the European Commission and the US policy threat to global trade, finishing the week at $1.09/€. The Japanese yen depreciated by 3.4% against the US dollar, ending the week at ¥106.60/$.
Economic Releases
  • In the US, news flow was dominated by the Presidential election. Consumer confidence in the period prior to the election soared from 87.2 to 91.6, on the back of expectations of a brighter economic outlook. The budget deficit, likely to significantly increase by anticipated expansionary fiscal policies during the Trump presidency, was significantly below expectations in the latest release at $44.2 billion. This compares to consensus estimates of $70.0 billion and the previous figure of $136.6 billion. The number of initial jobless claims fell to 254k from 265k, and below analyst forecasts of 260k.
  • It was a quiet week for economic releases in the Eurozone. Annual retail sales were up 1.1% in September, falling from 1.2% in the previous month. The Markit Eurozone Retail Purchasing Managers Index (PMI) fell for a second month in October, decreasing from 49.6 to 48.6 and remaining below the 50 threshold, signaling contraction. In Germany, factory orders (month-on-month) unexpectedly fell by -0.6% in September, after 0.9% growth in the previous month. The drop in new business was driven by domestic demand, with orders within Germany's borders falling by 1.1%, while orders from abroad fell back by 0.3%. In Japan, the October Economy Watchers survey's current component rose from 44.8 to 46.2 and the outlook component increased to 49.0 from 48.5, both beating consensus estimates. However, both remain below the threshold level of 50 which indicates overall optimism in the economy. According to preliminary estimates, machine tool orders continued on a downward path, falling by 8.9% over the twelve months to October. The adjusted current account balance fell to ¥1,477 billion in September from ¥1,976 billion. This was despite a widening trade surplus which rose to ¥642.4 billion from ¥243.2 billion, albeit below forecasts of ¥668.8 billion.
  • In China, the transition to a more robust economy once again took a hit as trade figures undershot predictions. The trade balance in US dollar terms rose to $49.1 billion but fell short of surveyed estimates of $51.7 billion. Export growth fell in the year to October by 7.3%, against a forecasted drop of 6.0%. The fall in exports represents the seventh consecutive month of contraction, despite a weaker Chinese yuan. On a more positive note, there were encouraging sign for businesses as the producer price index rose at an annual rate of 1.2% compared to consensus estimates of 0.9%. This is the second month of a rise after factory gate prices remained in deflationary territory for over four years. 
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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