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Aon Retirement and Investment Blog

Weekly Update - 19 September 2016

NEW INTELLECTUAL CAPITAL

  • Knowledge is the key to good benefits governance. This article authored in the UK by Aon Hewitt’s international retirement and investment practice, explains the benefits of good governance within companies’ global benefits programmes (first published in European Pensions).
MARKET MOVES (Week Ending September 16, 2016)
Equities
  • Global equity markets edged lower in the week, as uncertainties around central bank policies globally and a fall in energy prices overshadowed the market. The MSCI World Index fell 0.6% underperforming S&P 500 which rose 0.6% over the week. On a year to date basis, S&P 500 has outperformed MSCI World (6.3% vs. 4.1%).
  • US Large Cap stocks marginally outperformed Small Cap stocks as the S&P 500 rose 0.6% over the week whereas the Russell 2000 rose 0.5%. On a year to date basis, Small Cap stocks have outperformed Large Cap stocks (9.0% vs. 6.3%). Growth stocks outperformed Value stocks last week (1.3% vs. -0.02%) as measured by MSCI USA indices. On a year to date basis, Value stocks have outperformed Growth stocks, returning (8.3% vs. 4.3%).
Bonds
  • 10 year US Treasury yield rose by 2bps to 1.69% over the week. 30 year US Treasury yield rose by 5bps to 2.45% over the same period.
  • 20 year TIPS yields rose by 4bps to 0.44% over the week. 20 year Breakeven remained flat at 1.39%.
  • Credit spreads rose over the week. Both the Barclays Capital Long Credit Index spread over treasury yields and the Merrill Lynch US Corporate Index spread rose by 3bps, thus ending the week at 200bps and 143bps respectively. The US high yield bond spread over US treasury yields ended the week 17bps higher at 527bps. The spread of USD denominated EM debt over US treasury yields finished the week 16bps higher at 346bps.
Commodities
  • The S&P GSCI fell by 2.2% in USD terms over the week. The energy sector fell by 3.7% as the price of WTI Crude oil fell 6.2% to USD 43/BBL, driven by comments from the International Energy Agency (IEA) on elevated inventory levels. Industrial metals rose marginally by 0.5% and copper prices rose 3.4% to finish the week at $4,772/MT. Agricultural prices rose 0.5% while the gold price fell 1.7%, finishing the week at $1,311/ounce.
 Currencies
  • The US dollar appreciated against major currencies over the week except for the yen. The US dollar appreciated 1.3% against sterling, ending the week at $1.31/£. US dollar appreciated 0.4% against the euro, finishing the week at $1.12/€. The Japanese yen appreciated by 0.5% against the US dollar, ending the week at ¥102.26/$.
 Economic Releases
  • In a mixed week for US economic data, initial jobless claims were virtually unchanged (over the week ending 10 September) at 260k beating analysts' expectations of a small rise. Consumer price inflation (CPI) in August was 1.1%, 0.1% ahead of expectations and up from 0.8% in the previous month. While this is still below the Federal Reserve's target of 2.0%, the upward trend is expected to affect the likelihood of any short term interest rate hikes. Core inflation (which excludes volatile energy and food prices) was 2.3%, similarly 0.1% ahead of expectations. Real average weekly earnings growth over the 12 months to August fell to 0.4% from 1.2% in the previous month. In the industrial sector, while output growth was slightly weak in August (-0.4% on the month versus 0.6% previously), the forward looking and closely watch Philadelphia Fed index of activity was much better than the expected reading of 1 in September, actually rising to 12.8. This indicates that, while US growth momentum has slowed, it is still unlikely that we will see a recession there.
  • It was a quiet week for Europe in terms of data. CPI figures were finalized and unchanged for August. Industrial production did not fall as much as analysts were expecting at -0.5% (versus -0.8%). This followed an increase of 0.7% in the previous month. In Germany, the ZEW expectations survey (a leading indicator for economic sentiment) showed consumers were losing confidence in Germany's economy as the index undershot analysts’ expectations of 2.5 points and remained unchanged at 0.5 points from the previous period. This is well below its long-term average of 24.1 points.
  • Japanese economic data had a weak tone in a light week for economic releases. Industrial production contracted by 4.2% (revised down from -3.8%) year on year in July. According to preliminary estimates of Machine tool orders, it remained in contraction territory for the 13th consecutive month, falling by 8.4% over the twelve months to August.  
  • It was a strong week in China as the data showed signs of economic growth acceleration. Industrial production marginally beat expectations by 0.1% and came in at 6.3%, the fastest pace since March and up from 6.0% in the previous month. Similarly retail sales over the year also beat expectations, increasing by 0.4% to 10.6% at the end of August. Foreign direct investment which shrunk in July, rebounded more than expected by 5.7%. The data came as somewhat of a relief to investors, who are looking to China for any signs of global growth slowdown.

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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