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Aon Retirement and Investment Blog

Weekly Update - 26 September 2016 (UK/Europe)


  • Radar. Provides a summary of recent regulatory and industry events in Canada affecting talent, retirement, and health. 
  • Discount Rate Update. Average U.S. discount rates decreased by 4 basis points in August as investors continued to seek assets with higher yields. While Treasury rates moved higher across the curve, the average plan sponsor’s discount rate still decreased during the month as credit spreads compressed.
  • Global Invested Capital Market. The concept of a world market portfolio features prominently in many financial theories and models and serves as an important foundation of our asset allocation work for our clients. This research provides information on each asset’s share of the invested capital markets as well as illustrates the historical growth and composition of global invested capital markets since 2004.
  • Factor Investing. What’s the Big Deal with Low Volatility Equities? This paper, authored by our Global Asset Allocation team in the UK, examines low volatility investing as part of a wider Aon research project covering factor investing. An explanation of factor investing, the low volatility premium, risks and our outlook are provided.


  • Equity markets rallied globally as the US Federal Reserve (Fed) lowered their expectations for rate rises next year. The MSCI AC World Index rose 1.9% in local currency terms. Broad sterling weakness boosted returns up to 3.1% to unhedged UK investors. The UK was the best performing region in local currency terms (3.0%). Japan was the best performing region in sterling terms, returning 5.0%. Japanese policy interest rates remained unchanged, giving support to bank shares and the yen. The US was the worst performing market in both local currency and sterling terms, returning 1.2% and 2.2% respectively.
  • Bond yields fell globally after the US Fed left its interest rate unchanged and lowered projections for future rate hikes. The 10 year UK gilt yield fell sharply by 14bps to 0.73% and the 20 year UK gilt yield fell by 15bps to 1.29%. The 10 year US treasury yield fell by 9bps to 1.61% European government bond yields fell across the region, following the global trend. German bund yields fell by 8bps to finish the week at -0.15% and French government bond yields fell by 9bps, thus ending the week at 0.15%.
  • UK real yields fell over the week. The 20 year real yield fell by 9bps to finish the week at -1.78% and the Over 5 year real yield fell by 5bps, finishing the week at -1.74%. 20 year breakeven inflation fell by 6bps to 3.08%.
  • Credit spreads fell over the week. The US high yield bond spread over US treasury yields ended the week 17bps lower at 510bps. The spread of USD denominated EM debt over US treasury yields finished the week 14bps lower at 332bps. The sterling non-gilt spread over government yields (based on the Merrill Lynch index) fell by 1bp to 120bps.
  • The S&P GSCI rose by 1.0% in USD terms over the week. The energy sector rose by 1.0% due the 2.6% increase in Brent crude oil prices, ending the week at USD 47/BBL. The increase was driven by progressive talks between Saudi Arabia and Iran regarding scaling back production. Industrial metals rose by 2.8% as copper prices increased by 1.3% to $4,833/MT. Agricultural prices rose 0.5% and gold prices rose 2.2%, finishing the week at $1,340/ounce.
  • Sterling depreciated against all major currencies over the week as concerns regarding Brexit re-emerged. The US dollar appreciated by 0.9% against sterling, ending the week at $1.30/£. The euro appreciated by 1.4% against sterling, finishing the week at €1.16/£. The Japanese yen appreciated by 1.3% against the US dollar, thus ending the week at ¥100.96/$.


  • US jobless claims fell by 8k to 252k, the largest drop since early July which surprised analysts who were expecting a small increase. Filings have been below 300,000 for 81 straight weeks - the longest streak since 1970 and typical of a healthy labour market. US housing activity declined, after two straight months of solid increases, as housing starts fell slightly short of expectations (1.14m vs 1.19m expected).
  • It was a quiet week for economic releases in the UK. Public Sector Net Borrowing (excluding banking groups) climbed to £10.5bn in August following the preceding month’s £1.9bn fall. The Confederation of British Industry reported that UK manufacturing output continued to show little change in recent weeks. Headline total orders remained at -5, well above the long-run average of -20. This was contrasted, however, by an unexpected dip in selling prices which slipped from 8 to 5 in September.
  • In Europe, provisional figures for the Markit Manufacturing Purchasing Managers' Index (PMI) showed an increase over the month from 51.7 to 52.6. The provisional Services PMI fell from 52.8 to 52.1, in line with what analysts were expecting and the overall composite fell by 0.3 to 52.6. It still remains over 50, signaling growth in the economy. The EU wide consumer confidence survey rose by 0.3 points to -8.2 and remains above the long term average of -12.5. In Germany, the provisional composite PMI fell from 53.3 to 52.7. The provisional Manufacturing PMI increased from 53.6 to 54.3 whilst the services PMI fell from 51.7 to 50.6.
  • The Japanese preliminary manufacturing PMI for September entered expansionary territory for the first time in seven months as the index rose to 50.3 from 49.5 in August. Exports fell by 9.6% in the year to August whereas imports fell by 17.3% over the same period. This led to an adjusted trade surplus of ¥408bn in August, lower than the consensus expectation of ¥494bn, as exports declined more sharply than imports incorrect. Consumption data was weak as department store sales fell sharply by 6.0% over the twelve months to August and sales in the capital also fell sharply by 5.9%. Similarly, supermarket sales also fell 2.9% over the same period.
  • There was very little data from China in the week. Average month-on-month growth of new home prices accelerated to 2.2% in August, a rebound from a low of 1.3% in June. The MNI China Business Sentiment Indicator rose from 54.1 to 55.8 in September leaving confidence at the highest level since August 2015.

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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