Federal Reserve, European Central Bank, and Bank of Japan Balance Sheets

Note that the ECB and BOJ balance sheets now exceed that of the US Fed.




Source: Bloomberg & Morgan Stanley

June 2017 - Monthly Market Commentary

June was a decent month for global risk assets.  Global equities were mixed, with small cap and value outperformance in the US, the USD weakened, the US interest rate curve continued to flatten, commodities were mixed, and credit spreads widened slightly.  Early in the month, the ECB unveiled better economic forecasts and indicated that it was unlikely to cut interest rates again in this cycle.  Election results in England delivered a setback for Prime Minister May, as Conservatives were left short of a majority in Parliament, resulting in greater uncertainty as Brexit negotiations unfold.  The Federal Reserve increased interest rates to a range of 1-1.25%, and detailed plans to begin reducing its balance sheet later this year.  Late in the month, BOE Governor Carney indicated that interest rates in the UK may need to increase, contributing to a selloff in government bonds.  The US job report showed that 138,000 non-farm jobs were added in May, the unemployment rate ticked lower to 4.3% (a 16 year low), and the labor force participation rate fell slightly to 62.7%. 

Notable corporate transactions announced in June included the $4.9 billion purchase of Wirtgen Group by Deere, CIC’s $13.6 billion acquisition of Logicor from Blackstone, the $564 million purchase of Xactly by Vista Equity Partners, CD&R’s $2.5 billion acquisition of Waterworks from HD Supply Holding, the acquisition of Banco Popular by Banco Santander for one euro, the $930 million purchase of iNova Pharmaceuticals by the Carlyle Group and Pacific Equity Partners, the $605 million acquisition of SciClone Pharmaceuticals by a group led by GL Capital, Digital Realty Trust’s $5 billion acquisition of Dupont Fabros Technology, the $735 million sale of Encana’s Piceance natural gas assets to Caerus Oil and Gas, Atairos Group’s $1 billion acquisition of Bowlmor AMF, the $13.7 billion purchase of Whole Foods by Amazon, Walmart’s $310 million acquisition of Bonobos, the $5 billion purchase of Parexel by Pamplona Capital, the $1 billion acquisition of Casamigos by Diageo, Repligen’s $359 million purchase of Spectrum, Martin Marietta’s $1.6 billion purchase of Bluegrass Materials, the $1.4 billion acquisition of First Potomac Realty Trust by Government Properties, the purchase of Spectranetics by Philips for $2.2 billion, Sycamore Partners’ $6.9 billion purchase of Staples, the $1.8 billion sale of Visma by KKR to a group led by HgCapital, and Blackstone’s $650 million acquisition of Croesus Retail Trust.

Developed market equity markets were mixed in June (see page 8), with the largest gains in Japan (+2.7%), Hong Kong (+0.8%), and the S&P500 (+0.6%); the worst performing were Spain (-2.8%), France (-2.7%), and the UK (-2.5%).  US small caps outperformed large caps, with the Russell 2000 up 3.5% and the Russell 1000 up 0.7% (see page 3).  Financials (+6.4%), Healthcare (+4.6%), and Real Estate (+1.9%) were the best performing sectors in June, while Telecom (-2.9%), IT (-2.7%), and Utilities (-2.7%) were the worst performing (see page 2).  Large cap value (+1.6%) outperformed large cap growth (-0.3%) in June (see page 3).  Emerging Market equities were mostly higher in June (see page 9), with the biggest gains in Taiwan (+5.2%), Korea (+3.2%), and Indonesia (+2.7%); Argentina (-3.5%), India (-0.6%), and Russia (-0.3%) were the worst performing. 

In currencies, the USD Index was down 1.3% in June (see page 10).  The strongest developed market currencies against the USD were the Canadian Dollar (+4.1%), New Zealand Dollar (+3.5%), and Australian Dollar (+3.5%); the Japanese Yen was down 1.4%.  Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+2.7%), Singapore Dollar (+0.5%), and Thai Baht (+0.4%) and losses in the Russian Ruble (-3.1%), Brazilian Real (-2.5%) and Korean Won (-2.3%).

The US Treasury yield curve flattened in June (see page 12).  10 year rates closed the month at 2.31%, up from 2.20% at May month end.  Investment grade and high yield credit spreads widened in June (see page 13).

In commodities, the GSCI index was down 1.9% in June (see page 11), with gains in Agriculture (+3.3%) and Industrial Metals (+3.2%) and losses in Energy (-4.3%), Precious Metals (-2.8%), and Livestock (-2%).  Within individual commodities, Wheat (+18.8%), Copper (+4.5%), and Soybeans (+3.6%) saw the biggest gains, while Sugar (-8.4%), Cotton (-7.1%), and Cocoa (-6.4%) saw the biggest losses.  Gold was down 2.5% for the month.

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Number of Trading Days with SPX Moves > 2%

Halfway through 2017, there have been zero days with an intraday SPX move of 2% or more.

Source: Credit Suisse 

May 2017 - Monthly Market Commentary

May was a strong month for global risk assets.  Global equities were mostly higher with continued outperformance outside of the US and by growth stocks within US markets, the USD weakened, the US interest rate curve continued to flatten, commodities were mixed, and credit spreads were little changed.  Early in the month, the Fed left interest rates unchanged and indicated that two more rate hikes were likely later this year in June and September, while the Fed minutes indicated that officials were moving towards a consensus to begin reducing the central bank’s balance sheet later this year.  Concerns over Congress’ ability to agree on a debt ceiling increase have caused some to question the likelihood of the second rate hike in September.  Emmanuel Macron won the French Presidential election with almost two-thirds of the vote, providing a boost to European stocks and the pro-EU establishment.  The Bank of England left interest rates and its QE program unchanged and indicated that if Brexit negotiations proceed smoothly, it may start to increase rates in response to rising inflation.  The US job report showed that 211,000 non-farm jobs were added in April, the unemployment rate ticked lower to 4.4%, and the labor force participation rate fell slightly to 62.9%. 

Notable corporate transactions announced in May included the $875 million purchase of Canam Group by the Dutil family and American Industrial Partners, IAC’s $500 million acquisition of Angie’s List, the $600 million purchase of Viptela by Cisco, Sinclair Broadcast’s $3.9 billion acquisition of Tribune Media, the $2.4 billion acquisition of Kate Spade by Coach, DHX Media’s $345 million purchase of the entertainment division of Iconix Brand Group, KPS Capital’s $425 million acquisition of golf brands from Adiddas, Verizon’s $3.1 billion acquisition of Straight Path Communications, the $7.2 billion purchase of Patheon by Thermo Fischer Scientific, Moody’s $3.3 billion acquisition of Bureau van Dijk, the $560 million purchase of Pittsburgh Corning by Owens Corning, Spectrum Brand’s $225 million acquisition of PetMatrix, the $14 billion merger of Huntsman and Clariant, the $446 million acquisition of Nutraceutical by HGGC, CF Corp’s $1.84 billion purchase of Fidelity & Guaranty, LSE’s $685 million purchase of Citigroup’s analytics and fixed income index operations, and First Data’s $750 million purchase of CardConnect.

Developed market equity markets were mostly higher in May (see page 8), with the largest gains in the UK (+4.8%), Hong Kong (+3.5%), and Japan (+2.2%); the worst performing were Australia (-3.5%), Canada (-1.4%), and Italy (+0.8%).  US small caps underperformed large caps, with the Russell 2000 down -2% and the Russell 1000 up 1.3% (see page 3).  IT (+4.4%), Utilities (+4.2%), and Consumer Staples (+2.9%) were the best performing sectors in May, while Energy (-3.4%), Financials (-1.2%), and Telecom (-1%) were the worst performing (see page 2).  Large cap growth (+2.6%) outperformed large cap value (-0.1) in May (see page 3).  Emerging Market equities were mostly higher in May (see page 9), with the biggest gains in Korea (+6.3%), Argentina (+6%), and China (+5.4%); Russia (-6.6%), Brazil (-3.7%), and Mexico (-1.1%) were the worst performing. 

In currencies, the USD Index was down 2.1% in May (see page 10).  The strongest developed market currencies against the USD were the Euro (+3.2%), New Zealand Dollar (+3.2%), and Swiss Franc (+2.8%); the weakest were the Australian Dollar (-0.8%) and British Pound (-0.5%).  Emerging market currencies were mostly higher against the USD, with the biggest gains in the Chinese Yuan (+2.2%), South African Rand (+2.2%), and Korean Won (+1.6%) and losses in the Brazilian Real (-1.5%) and Indian Rupee (-0.3%).

The US Treasury yield curve flattened in May (see page 12).  10 year rates closed the month at 2.20%, down from 2.28% at April month end.  Investment grade and high yield credit spreads were little changed in May (see page 13).

In commodities, the GSCI index was down 1.5% in May (see page 11), with gains in Livestock (+4.4%) and Precious Metals (+0.4%) and losses in Energy (-2.6%), Agriculture (-1.7%), and Industrial Metals (-0.3%).  Within individual commodities, Lean Hogs (+12.1%), Cocoa (+11.3%), and Gasoline (+3%) saw the biggest gains, while Natural Gas (-8.6%), Sugar (-7.7%), and Soybeans (-4.1%) saw the biggest losses.  Gold was up 0.4% for the month.

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April 2017 - Monthly Market Commentary

April was a fairly strong month for global risk assets.  Global equities were mostly higher with continued outperformance outside of the US and by growth stocks within US markets, the USD weakened, the US interest rate curve flattened, commodities were mostly lower with continued weakness in the energy complex, and credit spreads tightened.  Early in the month, the Fed minutes showed that the central bank would likely start reducing the size of its balance sheet later this year.  British Prime Minister May called for a surprise early general election for June 8 in a bid to solidify her position ahead of Brexit negotiations with the EU.  The ECB made no changes to interest rates or its bond buying program at its April meeting.  US GDP once again showed weak first quarter growth with a 0.7% annual growth rate, the slowest rate of expansion in three years.  The US job report showed that 98,000 non-farm jobs were added in March, the unemployment rate ticked lower to 4.5%, and the labor force participation rate remained at 63%. 

Notable corporate transactions announced in April included the $116 billion purchase of Convergex Group by Cowen Group, Liberty Interactive Corp’s $1.1 billion acquisition of General Communication, the $7.5 billion purchase of Panera Bread by JAB, Seven & I Holdings’ $3.3 billion acquisition of the Sunoco chain of gas stations, the $5 billion merger of Swift Transportation and Knight Transportation, AT&T’s $1.6 billion purchase of Straight Path Communications, RetailMeNot’s $630 million acquisition by Harland Clarke Holdings, the $1.2 billion purchase by Lowes Corp of Consolidated Container from Bain Capital, NuStar Energy’s $1.5 billion acquisition of Navigator Energy, the $660 million purchase of Pharmachem Laboratories by Ashland Global, Blackstone’s $2 billion acquisition of EagleClaw Midstream Ventures, the purchase of Focus Financial Partners by KKR and Stone Point Capital for an undisclosed price, Virtu Financial’s $1.4 billion acquisition of KCG Holdings, and LVMH’s $13 billion purchase of the remaining stake in Christian Dior.

Developed market equity markets were mostly higher in April (see page 8), with the largest gains in France (+3.5%), Hong Kong (+3.2%), and Spain (+2.7%); the worst performing were the UK (-1.3%), Italy (flat), and Canada (+0.4%).  US small caps performed in line with large caps, as both the Russell 2000 and the Russell 1000 were up 1.1% (see page 3).  IT (+2.5%), Consumer Discretionary (+2.4%), and Industrials (+1.8%) were the best performing sectors in April, while Telecom (-3.3%), Energy (-2.9%), and Financials (-0.8%) were the worst performing (see page 2).  Large cap growth (+2.3%) outperformed large cap value (-0.2%) in April (see page 3).  Emerging Market equities were higher in April (see page 9), with the biggest gains in the Philippines (+5.2%), Indonesia (+3.3%), and Korea (+2.8%); Thailand (+0.7%), Brazil (+0.7%), and Russia (+0.7%) were the worst performing. 

In currencies, the USD Index was down 1.3% in April (see page 10).  The strongest developed market currencies against the USD were the British Pound (+3.2%), Euro (+2.3%), and Swedish Krona (+1.3%); the weakest were the Canadian Dollar (-2.5%), New Zealand Dollar (-2%), and Australian Dollar (-1.8%).  Emerging market currencies were mostly higher against the USD, with the biggest gains in the Turkish Lira (+2.4%), Malaysian Ringgit (+1.9%), and Indian Rupee (+0.9%) and losses in the Korean Won (-1.8%), Brazilian Real (-1.7%) and Russian Ruble (-1.3%).

The US Treasury yield curve flattened in April (see page 12).  10 year rates closed the month at 2.28%, down from 2.39% at March month end.  Investment grade and high yield credit spreads tightened in April (see page 13).

In commodities, the GSCI index was down 2.1% in April (see page 11), with gains in Livestock (+8.6%) and Precious Metals (+0.6%) and losses in Energy (-3.6%), Industrial Metals (-3.1%), and Agriculture (-1.7%).  Within individual commodities, Feeder Cattle (+15.1%), Live Cattle (+11.9%), and Palladium (+3.6%) saw the biggest gains, while Cocoa (-12.9%), Gasoline (-9.1%), and Silver (-5.8%) saw the biggest losses.  Gold was up 1.4% for the month.

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March 2017 - Monthly Market Commentary

March was a mixed month for global risk assets.  Global equities were mostly higher with notable outperformance outside of the US, the USD weakened, the US interest rate curve flattened with a backup in rates at the short end, commodities were mostly lower with notable weakness in the energy complex, and credit spreads widened.  Early in the month, the ECB indicated that additional stimulus measures to boost economic growth and inflation in the Eurozone were less likely and left interest rates and its pace of bond purchases unchanged.  Mid-month, the Federal Reserve raised short term interest rates to a range between 0.75 - 1% and indicated that two more rates hikes were likely this year.  On March 29 British Prime Minister May formally began the UK’s process of leaving the EU, kicking off many years of Brexit negotiations.  The US job report showed that 235,000 non-farm jobs were added in February, the unemployment rate ticked lower to 4.7%, and the labor force participation rate moved up to 63%. 

Notable corporate transactions announced in March included the $2.3 billion sale of GM’s European operations to Peugeot and BNP Pribas, the $13.5 billion merger of Aberdeen Asset Management and Standard Life, the $1 billion acquisition of Nimble Storage by Hewlett Packard Enterprise, Intel’s $15 billion purchase of Mobileye, HNA Capital’s $450 million acquisition of a 25% stake in OM Asset Management, Amazon’s purchase of Souq.com for an undisclosed sum, the $4.3 billion sale of Onex’s USI Insurance unit to KKR and CDPQ, American Airlines’ $200 million purchase of a stake in China Southern Airlines, Apple’s acquisition of Workflow for an undisclosed sum, the $3.2 billion sale of Sealed Air’s New Diversey and food hygiene business to Bain Capital, China Energy’s $100 million purchase of a 19.9% stake in Cowen Group, the $13.3 billion sale of ConocoPhillips’ oil sands and western Canadian natural gas assets to Cenovus, MaxLinear’s $662 million purchase of Exar, an asset swap between DuPont’s crop protection business and FMC Corp’s health and nutrition business, the $555 million acquisition of TRC Companies by New Mountain Capital, and the $125 million sale of Sarepta’s Rare Pediatric Disease Priority Review Voucher to Gilead Sciences.

Developed market equity markets were mostly higher in March (see page 8), with the largest gains in Spain (+10.4%), Italy (+8.6%), and France (+5.6%); the worst performing were Japan (-0.8%), the S&P500 (+0.1%), and Canada (+1.1%).  US small caps performed in line with large caps, as both the Russell 2000 and the Russell 1000 were up 0.1% (see page 3).  IT (+2.6%), Consumer Discretionary (+2.1%), and Materials (+0.5%) were the best performing sectors in March, while Financials (-2.8%), Telecom (-1.2%), and Energy (-1%) were the worst performing (see page 2).  Large cap growth (+1.2%) outperformed large cap value (-1%) in March (see page 3).  Emerging Market equities were mostly higher in March (see page 9), with the biggest gains in Argentina (+12.8%), Indonesia (+4.3%), and Korea (+4.1%); Brazil (-2.5%), Russia (-0.8%), and Taiwan (+0.5%) were the worst performing. 

In currencies, the USD Index was down 0.8% in March (see page 10).  The strongest developed market currencies against the USD were the British Pound (+1.4%), Japanese Yen (+1.2%), and Swedish Krona (+0.7%); the weakest were the New Zealand Dollar (-2.6%) and Norwegian Krone (-2.4%).  Emerging market currencies were mostly higher against the USD, with the biggest gains in the Mexican Peso (+7.4%), Russian Ruble (+3.8%), and Indian Rupee (+3%) and losses in the South African Rand (-2.3%), Brazilian Real (-0.3%) and Chinese Yuan (-0.3%).

The US Treasury yield curve flattened in March with a backup in rates at the short end of the curve (see page 12).  10 year rates closed the month at 2.39%, unchanged from February month end.  Investment grade and high yield credit spreads widened in March (see page 13).

In commodities, the GSCI index was down 3.9% in March (see page 11), with gains in Livestock (+1.2%) and losses in Agriculture (-5.2%), Energy (-4.9%), Industrial Metals (-0.9%), and Precious Metals (-0.5%).  Within individual commodities, Natural Gas (+12.2%), Cocoa (+9.8%), and Feeder Cattle (+7.1%) saw the biggest gains, while Sugar (-12.8%), Soybeans (-8.6%), Platinum (-7.9%), and Crude Oil (-7.3%) saw the biggest losses.  Gold was down 0.4% for the month.

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February 2017 - Monthly Market Commentary

February was a strong month for global risk assets.  Developed and emerging market equities were mostly higher, the USD strengthened, the US interest rate curve flattened, commodities moved higher, and credit spreads tightened.  On the 1^st of the month, the Federal Reserve left interest rates unchanged and indicated that it remained on track to gradually raise short term interest rates in 2017, while noting a recent increase in consumer confidence.  Later in the month at her Congressional testimony, Chair Yellen signaled that a rate increase in March was a possibility.  In the UK, the Bank of England also left interest rates unchanged.  The US job report showed that 227,000 jobs were added in January, the unemployment rate ticked higher to 4.8%, and the labor force participation rate ticked up to 62.9%. 

Notable corporate transactions announced in February included the $16.6 billion purchase of Mead Johnson Nutrition by Reckitt Benckiser, the $4.3 billion acquisition of Aon’s benefits outsourcing business to Blackstone, Allergan’s $2.5 billion acquisition of Zeltiq Aesthetics, Softbank’s $3.3 billion purchase of Fortress Investment Group, Restaurant Brands’ $1.6 billion acquisition of Popeyes Louisiana Kitchen, the $310 million purchase of Turn by Amobee, the ad tech division of Singtel, Tronox’s $1.7 billion purchase of Cristal, and Saudi Aramco’s $7 billion purchase of a stake in Petronas’ RAPID refinery project.

Developed market equity markets were higher in February (see page 8), with the largest gains in the S&P500 (+3.9%), the UK (+3.1%), and Australia (+2.4%); the worst performing were Canada (flat), Japan (+0.5%), and Italy (+1.4%).  US small caps underperformed large caps, with the Russell 2000 up 1.9% and the Russell 1000 up 3.9% (see page 3).  Health Care (+6.4%), Utilities (+5.3%), and Financials (+5.2%) were the best performing sectors in February, while Energy (-2.2%), Telecom (-0.4), and Materials (+0.7%) were the worst performing (see page 2).  Large cap growth (+4.2%) outperformed large cap value (+3.6%) in February (see page 3).  Emerging Market equities were mostly higher in February (see page 9), with the biggest gains in India (+4.1%), China (+3.6%), and Brazil (+3.2%); Russia (-8.5%), Mexico (-0.4%), and Thailand (-0.2%) were the worst performing. 

In currencies, the USD Index was up 1.6% in February (see page 10).  The strongest developed market currencies against the USD were the Australian Dollar (+0.9%) and Japanese Yen (flat); the weakest were the Swedish Krona (-3.3%), Euro (-2.1%), and Canadian Dollar (-2%).  Emerging market currencies were mostly higher against the USD, with the biggest gains in the Mexican Peso (+3.6%), Turkish Lira (+3.5%), and Russian Ruble (+3.1%) and losses in the Chinese Yuan (-0.4%) and Malaysian Ringgit (-0.2%).

The US Treasury yield curve flattened in February (see page 12).  10 year rates closed the month at 2.39%, down from 2.45% at January month end.  Investment grade and high yield credit spreads tightened in February (see page 13).

In commodities, the GSCI index was up 0.2% in February (see page 11), with gains in Precious Metals (+3.7%), Industrial Metals (+1.7%), and Livestock (+1.3%) and losses in Energy (-0.3%) and Agriculture (-0.2%).  Within individual commodities, Aluminum (+5.8%), Silver (+4.9%), and Gold (+3.6%) saw the biggest gains, while Natural Gas (-13.1%), Cocoa (-10.2%), and Coffee (-6.2%) saw the biggest losses.

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