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Aon Retirement and Investment Blog

Weekly Update - 6 September 2016 (UK/Europe)

NEW INTELLECTUAL CAPITAL

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

MARKET MOVES

  • Global equities returns rose as markets rallied towards the end of the week. This followed weaker than expected US employment data, making an interest hike by the US Federal Reserve (Fed) in September less likely. The MSCI AC World Index rose 1.0% in local currency terms. However, it fell -0.3% in sterling terms due to sterling strength. Japan was the best performing region in in local currency terms (4.4%) as the market was driven by yen weakness, supporting exporter stocks, and comments from the Bank of Japan’s governor on further monetary easing. The UK was the best performing region in sterling terms (0.9%). Developed Asia Pacific ex Japan was the worst performing region in both local currency (-1.2%) and sterling terms (-2.9%), as Australian equities fell on the back of weak economic data and falling commodity prices affecting mining stocks
  • UK nominal gilt yields rose across the curve except for the very short end. The 10 year UK gilt yield rose by 9bps to 0.73% and the 20 year UK gilt yield rose by 10bps to 1.22%. The 10 year US treasury yield fell by 4bps to 1.60%.European government bond yields rose across the region. German bund yields rose by 5bps to finish the week at -0.10% and French government bond yields rose by 5bps, ending the week at 0.20%.
  • UK real yields rose over the week. The 20 year real yield rose by 2bps to finish the week at -1.80% and the Over 5 year real yield rose by 8bps, finishing the week at -1.75%. 20 year breakeven inflation rose by 10bps to 3.01%.
  • Credit spreads were mixed over the week. The US high yield bond spread over US treasury yields ended the week 5bps higher at 509bps. The spread of USD denominated EM debt over US treasury yields rose by 8bps at 337bps over the week. The sterling non-gilt spread over gilt yields (based on the Merrill Lynch index) was unchanged at 120bps.
  • The S&P GSCI fell by 4.4% in USD terms over the week. The energy sector fell by 6.7% due to a decline in Brent crude oil prices, which fell by 6.5%, ending the week at USD 47/BBL, as data indicated that US crude oil inventories rose sharply. Industrial metals fell by 0.3% while copper prices rose 0.3% to $4,617/MT. Agricultural prices fell 0.6% and the gold price fell 1.2%, finishing the week at $1,319/ounce.
  • Sterling appreciated sharply against major currencies over the week, driven by strong UK manufacturing data. The US dollar depreciated by 0.8% against sterling, ending the week at $1.33/£. The euro depreciated by 1.8% against sterling, finishing the week at €1.19/£. The Japanese yen sharply depreciated by 3.5% against the US dollar, ending the week at ¥104.16/$ after having reached the key ¥100 level last month.

ECONOMIC RELEASES

  • The key US release of the week was non-farm payrolls which rose by 151,000 in August after a stellar 275,000 rise over the previous month. This smaller increase failed to meet analyst expectations, as did the unemployment rate that stayed constant at 4.9% despite analysts' hopes of a small fall to 4.8%. Wage growth also slowed from 2.7% to 2.4% over the twelve months to August. The manufacturing ISM index also fell in August, sinking below the key 50 level (to 49.4 from 52.6) for the first time since February 2016. On the other hand, consumer confidence unexpectedly rose to 101.1 in August, an eleven month high. Lastly, the core PCE deflator rose by 1.6% over the twelve months to July, slightly higher than expected but the same as the prior period.
  • In the UK, the purchasing managers' index (PMI) for the manufacturing sector came in ahead of analysts' expectations of 49 (signaling contraction) at 53.3 (signaling growth). The UK economy has never contracted in a quarter when the manufacturing PMI has indicated growth since 1995. GfK’s consumer confidence measure enjoyed its best monthly rise since June 2015 this month, rising by 5 points to -7, having collapsed by 11 points in July in the wake of the EU referendum. The housing market also picked up in August as the Nationwide House Price Index rose by 0.6% from the previous month despite the Brexit vote. Analysts were expecting a 0.2% fall, given the slowdown in activity in the housing market over recent months.
  • In the Eurozone, estimated CPI inflation over the twelve months to August was 0.2%. Core CPI (which excludes volatile food and energy prices) inflation was 0.8%. Both of these figures were 0.1% below expectations. The unemployment rate was 10.1%, unchanged from the previous month. The producer prices index fell 2.8% over the twelve months to July, the lowest decline since August last year. In Germany, retail sales fell by 1.5% over the year when a small rise was expected.
  • Japanese economic data continued to be weak. Industrial production disappointed analysts by falling 3.8% over the twelve month to July. Household spending (which includes rent) contracted for the fifth month in a row, falling by 0.5% over the twelve months to July, but less than the 1.5% fall penciled in by analysts. Retail sales (which exclude rent) fell by 0.2% over the same period, better than the consensus estimate of -0.9%. Labour market data continued to be strong with the jobless rate falling to a 21 year low of 3.0% in July, beating estimates of a flat reading of 3.1%.
  • The Chinese Caixin manufacturing PMI fell to 50.0 in August, more or less as expected by analysts, but the official measure rose to 50.4, which surprised analysts who were expecting little change
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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