November 2019 - Monthly Market Commentary

November was a fairly strong month for global risk assets, as developed market equities rose, emerging market equities were mixed, the US yield curve shifted slightly higher, the US dollar rose, credit spreads tightened, and the oil complex rallied. The US ISM manufacturing activity index rose slightly in October, but remained below 50, signaling continued contraction in the sector, while the non-manufacturing index rose to 54.7. In Congressional testimony, Fed Chairman Powell indicated that another interest rate cut was unlikely this year. US consumer prices rose 0.4% in October, while the US budget deficit for the 12 months ended in October exceeded $1 trillion for the first time since February 2013. Consumer inflation in China rose 3.8% in October from a year earlier, driven by soaring pork prices, though producer prices fell 1.6%, and the People’s Bank of China cut its lending benchmark rate. Japan’s GDP grew at a 0.2% annualized rate in the third quarter, the slowest pace in a year. The US jobs report showed that 128,000 jobs were added in October (the 109th consecutive month of job creation), the unemployment rate ticked higher to 3.6%, the labor force participation rate increased to 63.3%, average hourly earnings rose 3% from a year earlier, and the total labor force hit a record high of 164.4 million, of which 158.5 million were employed.

Developed market equities were mostly higher in November (see page 8), with the biggest gains in the S&P 500 (+3.6%), Canada (+3.5%), and Germany (+3%), and losses in Hong Kong (-1.6%). US small caps outperformed large caps, with the Russell 2000 up 4.1% and the Russell 1000 up 3.8% (see page 3). IT (+5.4%), Financials (+5%), and Health Care (+5%) were the best performing sectors in November; Utilities (-1.8%), Real Estate (-1.7%), and Consumer Staples (+1.3%) were the worst performing sectors (see page 2). Large cap growth (+4.4%) outperformed large cap value (+3.1%) in November (see page 3). Emerging market equities were mixed in November (see page 9), with the biggest gains in Argentina (+7.1%), Taiwan (+1.8%), and China (+1.7%), and losses in the Philippines (-3.2%), Indonesia (-2.4%), and Malaysia (-2.1%).

In currencies, the USD Index was higher (+0.9%) in November (see page 10). The Australian Dollar (-1.9%), Swiss Franc (-1.4%), and Japanese Yen (-1.3%) weakened the most against the USD, while the Swedish Krona (+0.8%), New Zealand Dollar (+0.1%) strengthened. Emerging market currencies were mostly weaker against the USD, with gains in the South African Rand (+3%) and Chinese Yuan (+0.3%), and the largest losses in the Brazilian Real (-5.1%), Mexican Peso (-1.6%), and Korean Won (-1%).

The US interest rate curve shifted higher in November (see page 12). 10 year rates closed the month at 1.78%, up from 1.69% at October month end. US investment grade and high yield spreads tightened in November (see page 13).

In commodities, the GSCI index was flat in November (see page 11), with gains in Energy (+1%), and losses in Precious Metals (-3.4%), Industrial Metals (-2.7%), Livestock (-2%), and Agriculture (-0.1%). Within individual commodities, Coffee (+13.4%), Cocoa (+7.4%), and Wheat (+5.7%) saw the biggest gains, while Natural Gas (-16.1%), Lean Hogs (-11%), and Silver (-6%) saw the biggest losses.

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October 2019 - Monthly Market Commentary

October was a fairly strong month for global risk assets, as developed and emerging market equities mostly rose, the US yield curve steepened, the US dollar weakened, credit spreads tightened, and oil rallied. The Federal Reserve cut interest rates by 25bps for the third time since July, and highlighted weak business investment in its statement. Third quarter US GDP grew at 1.9%, supported by strong consumer and government spending. The US ISM manufacturing activity index fell to its lowest level since June 2009, while the nonmanufacturing index fell to the lowest level since August 2016. Australia’s central bank cut interest rates to a record low 0.75%, the third rate cut in five months. China’s exports to the US fell by 22% in September from a year earlier, and total exports fell 3.2%. Chinese GDP grew 6% in the third quarter, the slowest rate of growth since the current measure of GDP was adopted in 1992. The US jobs report showed that 136,000 jobs were added in September (the 108th consecutive month of job creation), the unemployment rate fell to 3.5%, the labor force participation rate held at 63.2%, average hourly earnings rose 2.9% from a year earlier, and the total labor force hit a record high of 164 million.

Developed market equities were mostly higher in October (see page 8), with the biggest gains in Japan (+4.9%), Hong Kong (+4.7%), and Germany (+3.5%), and biggest losses in the UK (-2.1%), Canada (-0.9%), and Australia (-0.4%). US small caps outperformed large caps, with the Russell 2000 up 2.6% and the Russell 1000 up 2.1% (see page 3). Healthcare (+5.1%), IT (+3.9%), and Communication Services (+3%) were the best performing sectors in October; Energy (-2.3%), Utilities (-0.8%), and Consumer Staples (-0.1%) were the worst performing sectors (see page 2). Large cap value (+1.4%) underperformed large cap growth (+2.8) in October (see page 3). Emerging market equities were mostly higher in October (see page 9), with the biggest gains in Russia (+7.4%), Taiwan (+6.1%), and India (+4.4%), and the losses in Argentina (-4.8%) and Thailand (-2.8%).

In currencies, the USD Index was lower (-2%) in October (see page 10), with the biggest gains against the USD seen in the British Pound (+5.3%), New Zealand Dollar (+2.4%), and Euro (+2.3%); the Norwegian Krone (-1%) moved lower against the USD. Emerging market currencies were mostly higher against the USD, with the largest gains in the Brazilian Real (+3.4%), Mexican Peso (+2.6%), and Korean Won (+2.5%), and losses in the Turkish Lira (-1.1%) and Indian Rupee (-0.6%).

The US interest rate curve steepened in October (see page 12). 10 year rates closed the month at 1.69%, up from 1.66% at September month end. US investment grade and high yield spreads tightened in October (see page 13).

In commodities, the GSCI index was up 1.2% in October (see page 11), with gains in Precious Metals (+3.3%), Industrial Metals (+1.7%), Livestock (+1.5%), Agriculture (+1.4%), and Energy (+0.9%). Within individual commodities, Palladium (+6.7%), Silver (+6.4%), and Live Cattle (+6.4%) saw the biggest gains, while Lean Hogs (-9%), Cocoa (-1.5%), and Sugar (-1.2%) saw the biggest losses.

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September 2019 - Monthly Market Commentary

September was a fairly strong month for global risk assets, as developed and emerging market equities mostly rose, global interest rates moved higher from historic August lows, the US yield curve steepened, but remained inverted, the US dollar strengthened, credit spreads widened, and gold retreated. The Federal Reserve cut interest rates by 25bps, and highlighted strong household spending and weaker business investment and exports. The August reading of the ISM’s manufacturing index fell below 50 for the first time in three years, a sign of contraction in the sector. China’s central bank cut bank reserve requirements for the third time this year in an effort to stimulate the economy; China’s exports unexpectedly fell 1% in August from a year earlier. In Europe, the ECB’s outgoing President Draghi announced a cut to its key interest rate and a new package of bond purchases. The US jobs report showed that 130,000 jobs were added in August (the 107th consecutive month of job creation), the unemployment rate held at 3.7%, the labor force participation rate increased to 63.2%, average hourly earnings rose 3.2% from a year earlier, and the total labor force hit a record high of 163.9 million.

Developed market equities were mostly higher in September (see page 8), with the biggest gains in Japan (+5.9%), Spain (+5.1%), and Italy (+3.6%), and losses in Hong Kong (-0.6%). US small caps outperformed large caps, with the Russell 2000 up 2.1% and the Russell 1000 up 1.7% (see page 3). Financials (+4.6%), Utilities (+4.3%), and Energy (+3.8%) were the best performing sectors in September; Healthcare (-0.2%), Communication Services (+0.4%), and Consumer Discretionary (+0.9%) were the worst performing sectors (see page 2). Large cap value (+3.6%) outperformed large cap growth (flat) in September (see page 3). Emerging market equities were mostly higher in September (see page 9), with gains in Argentina (+8.5%), Korea (+5.8%), and Brazil (+3.3%), and the largest losses in Indonesia (-2.8%), the Philippines (-2.4%), and Malaysia (-1%).

In currencies, the USD Index was higher (+0.5%) in September (see page 10), with the biggest losses seen in the Japanese Yen (-1.7%), New Zealand Dollar (-1%), and Swiss Franc (-0.8%); the British Pound (+1.1%) and Canadian Dollar (+0.5%) moved higher against the USD. Emerging market currencies were mostly higher against the USD, with the largest gains in the Turkish Lira (+3.3%), Russian Ruble (+2.9%), and Mexican Peso (+1.7%), and losses in the Brazilian Real (-0.3%).

The US interest rate curve steepened in September, but remained inverted (see page 12). 10 year rates closed the month at 1.66%, up from 1.50% at August month end. US investment grade and high yield spreads widened in September (see page 13).

In commodities, the GSCI index was up 1.7% in September (see page 11), with gains in Livestock (+7.8%), Agriculture (+5.3%), Energy (+0.8%), and Industrial Metals (+0.6%), and losses in Precious Metals (-3.9%). Within individual commodities, Lean Hogs (+10.8%), Cocoa (+10.1%), and Feeder Cattle (+9.2) saw the biggest gains, while Silver (-7.2%), Platinum (-5%), and Gold (-3.5%) saw the biggest losses.

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August 2019 - Monthly Market Commentary

August was a difficult month for global risk assets, as developed and emerging market equities retreated (led by Argentina’s -50% move), global interest rates moved sharply lower as yields on the US 30 year bond hit a record low, the US yield curve inverted further, the US dollar strengthened (as the Chinese Yuan hit a 10 year low), the oil complex weakened, and gold rallied. The amount of global debt with negative yields reached a new record in August in excess of $17 trillion, with 30% of global investment grade securities bearing negative yields. At the Jackson Hole Economic Policy Symposium, Fed Chairman Powell kept future interest rate cuts on the table, but highlighted the Fed’s limits in countering economic uncertainty stemming from trade disputes. China’s urban unemployment rose to 5.3% in July, the highest level since reporting began. Amidst Brexit uncertainty, UK and German GDP contracted by 0.2% and 0.1% in the second quarter, respectively. In the Asia Pacific region, central banks in India, New Zealand, and Thailand cut interest rates in August. The US jobs report showed that 164,000 jobs were added in July (the 106th consecutive month of job creation), the unemployment rate held at 3.7%, the labor force participation rate increased to 63%, average hourly earnings rose 3.2% from a year earlier, and the total labor force hit a record high of 163.4 million.

Developed market equities were mostly lower in August (see page 8), with the biggest losses in Hong Kong (-8.2%), the UK (-4.2%), and Japan (-3.2%). US small caps underperformed large caps, with the Russell 2000 down 4.9% and the Russell 1000 down 1.8% (see page 3). Utilities (+5.2%), Real Estate (+4.9%), and Consumer Staples (+1.8%) were the best performing sectors in August; Energy (-8.1%), Financials (-4.8%), and Materials (-2.8%) were the worst performing sectors (see page 2). Large cap value (-2.9%) underperformed large cap growth (-0.8%) in August (see page 3). Emerging market equities were mostly lower in August (see page 9), with gains in Mexico (+5.3%) and India (+0.8%), and the largest losses in Argentina (-50.4%), China (-3.9%), and Thailand (-3.1%).

In currencies, the USD Index was higher (+0.4%) in August (see page 10), with the biggest losses against the USD in the New Zealand Dollar (-3.5%), Norwegian Krone (-2.8%), and Australian Dollar (-1.6%); the Japanese Yen (+2.4%) moved higher against the USD. Emerging market currencies were mostly lower against the USD, with gains in the Thai Baht (+0.9%), and the largest losses in the Brazilian Real (-8.1%), South African Rand (-5.6%), and Mexican Peso (-4.6%).

The US interest rate curve shifted lower and inverted further in August (see page 12). 10 year rates closed the month at 1.50%, down from 2.01% at July month end. US investment grade and high yield spreads widened in August (see page 13).

In commodities, the GSCI index was down 5.6% in August (see page 11), with gains in Precious Metals (+7%), and losses in Livestock (-8.7%), Agriculture (-6.8%), Energy (-6.6%), and Industrial Metals (-1.5%). Within individual commodities, Silver (+11.1%), Gold (+6.5%), and Platinum (+6.2) saw the biggest gains, while Lean Hogs (-10.4%), Gasoline (-9.6%), and Corn (-9.5%) saw the biggest losses.

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July 2019 - Monthly Market Commentary

Global risk assets were mixed in July, as developed market equities were mostly higher, emerging market equities were mostly lower, credit spreads were little changed, the US dollar strengthened, and the oil complex rose slightly. At its July meeting, the Federal Reserve cut interest rates by 25bps, announced an early end to their balance sheet runoff, and while the Chairman did not rule out further reductions, he indicated that it was “not the beginning of a long series of rate cuts”. The ECB held rates at current levels, but indicated that it would continue its asset purchase program for “as long as necessary”, and that it would continue its accommodative stance “for a prolonged period of time”. Congress and the White House reached a deal to suspend the debt ceiling beyond the next election and to increase federal spending. US GDP grew at 2.1% in the second quarter, down from 3.1% in the prior quarter. China, meanwhile, reported 6.2% GDP growth, lower than forecast, and the lowest level since quarterly growth statistics began being published in 1992. The US jobs report showed that 224,000 jobs were added in June (the 105th consecutive month of job creation), the unemployment rate ticked higher to 3.7%, the labor force participation rate increased to 62.9%, and average hourly earnings rose 3.1% from a year earlier.

Developed market equities were mixed in July (see page 8), with the biggest gains in Australia (+2.5%), the UK (+2.1%), and the S&P500 (+1.4%). US small caps underperformed large caps, with the Russell 2000 up 0.6% and the Russell 1000 up 1.6% (see page 3). Communication Services (+3.4%), IT (+3.3%), and Consumer Staples (+2.5%) were the best performing sectors in July; Energy (-1.8%), Healthcare (-1.6%), and Materials (-0.4%) were the worst performing sectors (see page 2). Large cap value (+0.8%) underperformed large cap growth (+2.3%) in July (see page 3). Emerging market equities were mostly lower in July (see page 9), with the largest gains in Taiwan (+3.4%), Russia (+0.8%), and Brazil (+0.7%), and the largest losses in India (-5.5%), Mexico (-5%), and Korea (-3.9%).

In currencies, the USD Index was higher (+2.5%) in July (see page 10), with the biggest losses against the USD seen in the British Pound (-4.2%), Swedish Krona (-3.9%), and Norwegian Krone (-3.8%). Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+3.7%), Brazilian Real (+1%), and Mexican Peso (+0.4%), and the largest losses in the Korean Won (-2.7%), South African Rand (-1.8%), and Singapore Dollar (-1.5%).

The US interest rate curve remained inverted in July, shifted lower at the short end, and higher in the belly of the curve (see page 12). 10 year rates closed the month at 2.01%, unchanged from June month end. US investment grade and high yield spreads were little changed in July (see page 13).

In commodities, the GSCI index was down 0.2% in July (see page 11), with gains in Livestock (+3.1%), Precious Metals (+1.5%), Industrial Metals (+0.6%), and Energy (+0.6%), and losses in Agriculture (-5.5%). Within individual commodities, Silver (+7.1%), Platinum (+4.7%), and Lean Hogs (+4) saw the biggest gains, while Coffee (-8.8%), Wheat (-7.4%), and Corn (-5.6%) saw the biggest losses. Gold was up 1% for the month.

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June 2019 - Monthly Market Commentary

June brought a sharp rebound in global risk assets, with US equities reaching fresh all-time highs as global trade tensions cooled somewhat during the month. Global equities rose sharply, credit spreads tightened, the US dollar weakened, and the oil complex rallied; US Treasury yields moved lower, particularly at the short end of the curve, and gold rallied to six year highs, as several major central banks took a more dovish tone during the month. At its June meeting, the Federal Reserve made no change to interest rates, but indicated that “the case for somewhat more accommodative policy has strengthened”. The Bank of Japan indicated that if economic growth slows, it would “consider expanding stimulus without hesitation”, the European Central Bank indicated that “additional stimulus will be required” in the Eurozone if the outlook doesn’t improve, and the Reserve Bank of Australia cut rates for the first time in three years; the Bank of England held rates and guidance unchanged. Citing global trade tensions, the World Bank lowered its global growth forecast to 2.6% from 2.9%, and cut its forecast for global trade growth to 2.6% from 3.6%. Despite global trade issues, the US service sector expanded, as the June ISM non-manufacturing index rose to 56.9 in May from 55.5 in April. US retail sales rose 0.5% in May, an increase from April’s 0.3%, though consumer confidence declined from 100 in May, to 97.9 in June. China’s imports dropped a sharper than expected 8.5% in May, after rising in April, and exports to the US fell 4.2%. The US jobs report showed that 75,000 jobs were added in May (the 104th consecutive month of job creation), the unemployment rate held at 3.6% (a 50 year low), the labor force participation rate held at 62.8%, and average hourly earnings rose 3.1% from a year earlier.

Developed market equities rose in June (see page 8), with the biggest gains in Italy (+7.2%), the S&P 500 (+7%), and Hong Kong (+6.7%). US small caps slightly outperformed large caps, with the Russell 2000 up 7.1% and the Russell 1000 up 7% (see page 3). Materials (+11.7%), Energy (+9.3%), and IT (+9.1%) were the best performing sectors in June; Real Estate (+1.8%), Utilities (+3.3%), and Communication Services (+4.3%) were the worst performing sectors (see page 2). Large cap value (+7.2%) outperformed large cap growth (+6.9%) in June (see page 3). Emerging market equities were mostly higher in June (see page 9), with the largest gains in Argentina (+26.6%), China (+7.7%), and Thailand (+6.2%), and losses in India (-1.2%).

In currencies, the USD Index was lower (-1.7%) in June (see page 10), with the biggest gains against the USD seen in the Canadian Dollar (+3.2%), New Zealand Dollar (+2.9%), and Norwegian Krone (+2.6%). Emerging market currencies were also stronger against the USD, with the largest gains in the South African Rand (+3.5%), Russian Ruble (+3.4%), and Korean Won (+2.8%).

The US interest rate curve shifted lower, and remained inverted in June (see page 12). 10 year rates closed the month at 2.01%, down from 2.12% at May month end. US investment grade and high yield spreads tightened in June (see page 13).

In commodities, the GSCI index was up 4.4% in June (see page 11), with gains in Precious Metals (+7.7%), Energy (+6.6%), Industrial Metals (+2%), and Agriculture (+0.3%), and losses in Livestock (-2.4%). Within individual commodities, Palladium (+15.7%), Crude Oil (+9%), and Gasoline (+9) saw the biggest gains, while Lean Hogs (-10%), Natural Gas (-5.6%), and Corn (-2.2%) saw the biggest losses. Gold was up 8% for the month.

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May 2019 - Monthly Market Commentary

May was a difficult month for global risk assets as the US/China trade dispute deepened, and the US announced new tariffs on Mexico (to begin to take effect on June 10), in an attempt to force Mexico to slow the flow of migrants. Global equities fell sharply, led by losses in China, credit spreads widened, the US yield curve inverted further, the US dollar strengthened, and the oil complex sold off. The Federal Reserve made no change to interest rates at its May 1 meeting, and indicated that slowing inflation could become a concern. Minutes from the meeting stated that “a patient approach” to adjusting the federal funds rate would “likely remain appropriate for some time”. US retail sales unexpectedly fell in April, and industrial production dropped. In Germany, the latest reading on factory orders showed a below forecast increase of 0.6%, and business sentiment dropped in May; yields on the German 10 year bond fell to a record low of -0.21%. In China, growth in both factory output and retail sales decelerated in April, while the Purchasing Managers’ Index fell below 50 in May, indicating a contraction from the prior month; in an effort to stimulate the slowing economy, the People’s Bank of China reduced the reserve requirement for regional banks. In Japan, meanwhile, first quarter GDP grew at a faster than expected rate of 2.1%, boosted by falling imports and a strong increase in public investment. The US jobs report showed that 263,000 jobs were added in April (the 103d consecutive month of job creation), the unemployment rate fell to 3.6% (a 50 year low), the labor force participation rate moved lower to 62.8%, and average hourly earnings rose 3.2% from a year earlier.

Notable corporate transactions announced in April included the $1.2 billion sale of Keebler and other brands by Kellogg to Ferrero, a $38 billion bidding war for Anadarko Petroleum by Chevron and Occidental culminating at month end with a $10 billion investment by Berkshire Hathaway in Occidental, the $4.4 billion purchase of Alliance Data’s Epsilon unit by Publicis, the $1.2 billion acquisition of Paragon Bioservices by Catalent, DSV’s $4.6 billion purchase of Panalpina, the $1.2 billion acquisition of Tranzact by Willis Towers Watson, the $3.6 billion purchase of Oryx by Stonepeak Infrastructure Partners, the $2.8 billion acquisition of DenizBank by Emirates NBD, the $750 million sale of Trilogy Education to 2U, the $8.6 billion purchase of a 90% stake in Transportadora Associada de Gas by a group led by Engie, the $850 million acquisition of Axoima by Deutsche Borse, the $1.2 billion acquisition of Wells Fargo’s retirement and trust unit to Principal Financial, the $1.7 billion purchase of Electronics for Imaging by Siris Capital, Waste Management’s $4.9 billion purchase of Advanced Disposal Services, Nippon Paint’s $2.7 billion acquisition of DuluxGroup, the $2.7 billion purchase of ConocoPhillips’ North Sea assets by Chrysaar, Canopy Growth’s $3.4 billion acquisition of Acreage Holdings, the $1.4 billion purchase of CapeOmega by Partners Group, the $1.4 billion purchase of JR Automation by Hitachi, and the $3.7 billion acquisition of Lord by Parker Hannifin.

Developed market equities rose in April (see page 8), with the biggest gains in Germany (+7%), France (+4.8%), and Spain (+4.4%). US small caps underperformed large caps, with the Russell 2000 up 3.4% and the Russell 1000 up 4% (see page 3). Financials (+9%), Communication Services (+6.5%), and IT (+6.4%) were the best performing sectors in April; Healthcare (-2.6%), Real Estate (-0.5%), and Energy (+0.1%) were the worst performing sectors (see page 2). Large cap value (+3.5%) underperformed large cap growth (+4.5%) in April (see page 3). Emerging market equities were mostly higher in April (see page 9), with the largest gains in Taiwan (+4.2%), Korea (+3.3%), and Mexico (+3.2%), and losses in Argentina (-7.9%).

In currencies, the USD Index was higher (+0.2%) in April (see page 10), with the biggest gains against the Swiss Franc (-2.3%), New Zealand Dollar (-1.9%), and Swedish Krona (-1.8%). Emerging market currencies were mixed, with the largest gains in the Mexican Peso (+2.6%), Russian Ruble (+1.8%), and South African Rand (+1.4%), and the largest losses in the Turkish Lira (-6.7%), Korean Won (-2.3%), and Malaysian Ringgit (-1.3%).

The US interest rate curve steepened, but remained somewhat inverted in April (see page 12). 10 year rates closed the month at 2.50%, up from 2.41% at March month end. US investment grade and high yield spreads tightened in April (see page 13).

In commodities, the GSCI index was up 2.8% in April (see page 11), with gains in Energy (+6.4%), and losses in Industrial Metals (-3.5%), Agriculture (-3.4%), Livestock (-2.6%), and Precious Metals (-0.8%). Within individual commodities, Gasoline (+11.6%), Brent Crude (+7.5%), and Crude Oil (+6.5) saw the biggest gains, while Wheat (-6.9%), Aluminum (-6.5%), and Soybeans (-4.6%) saw the biggest losses. Gold was down 0.8% for the month.

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