August 2017 - Monthly Market Commentary

August was a mixed month for global risk assets.  Developed market equities were mixed, with large cap and growth outperformance in the US, emerging market equities were mostly higher, the USD was unchanged, commodities were mixed, and credit spreads widened.  Minutes from the July Fed meeting showed a split amongst officials regarding the timing of the next interest rate increase due to persistently low inflation, though there appeared to be consensus for a September start to a reduction in the Fed’s balance sheet.  The annual Jackson Hole central banker meeting produced little insight into the monetary plans of the major central banks.  The US job report showed that 209,000 non-farm jobs were added in July, the unemployment rate ticked lower to 4.3%, and the labor force participation rate rose slightly to 62.9%. 

Notable corporate transactions announced in August included the $1.6 billion sale of sPower by Fir Tree to AES and AIMCo, KKR’s $1.4 billion acquisition of PharMerica Corp., the $3.3 billion purchase of CH2M Hill Cos by Jacobs Engineering, the $1.2 billion sale of the communities and sports division of Active Network to Global Payments, DigiCert’s $950 million acquisition of Symantec’s website security business, the acquisition of Tronox’s alkali business by Genesis Energy for $1.3 billion, the $2.4 billion purchase of American Medical Response by American Medical Group, the $11 billion merger of Invitation Homes and Starwood Waypoint, the $1 billion purchase of Transplace by TPG Capital, Transocean’s $3.4 billion acquisition of Songa Offshore, the $1.5 billion acquisition of DuPage Medical Group by Ares Management, the $325 million sale of Prudential’s US broker dealer network to LPL Financial, the $5.6 billion acquisition of Calpine by Energy Capital Partners, the $4.95 billion purchase of Maersk Oil by Total, the $9.45 billion acquisition of Oncor by Sempra Energy, Cisco’s $320 million purchase of Springpath, Japan Tobacco’s $936 million purchase of Mighty, the $2.6 billion acquisition of CRH’s US distribution arm by Beacon Roofing, the purchase of Kite Pharma by Gilead Sciences for $11 billion, Leonard Green’s $3.1 billion purchase of CPA Global, and the $1.55 billion acquisition of Advisory Board’s education business by Vista Energy.

Developed market equities were mixed in August (see page 8), with the largest gains in Hong Kong (+1.9%), the UK (+1.5%), and Italy (+1%); the worst performing were Spain (-2%), Germany (-0.6%), and Japan (-0.4%).  US small caps underperformed large caps, with the Russell 2000 down 1.3% and the Russell 1000 up 0.3% (see page 3).  IT (+3.5%), Utilities (+3.3%), and Health Care (+1.8%) were the best performing sectors in August, while Energy (-5.2%), Telecom (-3%), and Consumer Discretionary (-1.8%) were the worst performing (see page 2).  Large cap value (-1.2%) underperformed large cap growth (+1.8%) in August (see page 3).  Emerging market equities were mostly higher in August (see page 9), with the biggest gains in Argentina (+11.1%), Brazil (+7%), and Russia (+5%); Korea (-1.7%), India (-1.1%), and the Philippines (-1%) were the worst performing. 

In currencies, the USD Index was down 0.2% in August (see page 10).  The strongest developed market currencies against the USD were the Swedish Krona (+1.6%), Norwegian Krone (+1.3%), and Swiss Franc (+0.9%); the worst performing were the New Zealand Dollar (-4.4%), British Pound (-2.2%), and Australian Dollar (-0.7%).  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Russian Ruble (+3%), Chinese Yuan (+2%), and Turkish Lira (+1.9%) and losses in the Brazilian Real (-0.7%), Korean Won (-0.5%), and Mexican Peso (-0.5%).

The US Treasury yield curve shifted lower in August (see page 12).  10 year rates closed the month at 2.12%, down from 2.29% at July month end.  Investment grade and high yield credit spreads widened in August (see page 13).

In commodities, the GSCI index was down 0.8% in August (see page 11), with gains in Industrial Metals (+8.6%), Precious Metals (+4%), and losses in Agriculture (-7.4%), Livestock (-5.4%), and Energy (-0.3%).  Within individual commodities, Gasoline (+12.7%), Aluminum (+10.4%), and Natural Gas (+7.6%) saw the biggest gains, while Wheat (-13.6%), Coffee (-9.3%), and Corn (-7%) saw the biggest losses.  Gold was up 3.9% for the month.

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July 2017 - Monthly Market Commentary

July was a strong month for global risk assets.  Global equities moved higher, with large cap and growth outperformance in the US, the USD weakened, the oil complex moved sharply higher, and credit spreads tightened.  Early in the month, minutes from the June Fed meeting showed that Fed officials were readying plans to start shrinking the central bank’s balance sheet “within a couple of months”.  Later in the month, at their Open Market Committee meeting, the Fed left rates unchanged and said the balance sheet reduction could begin “relatively soon”.  At its own meeting, the ECB left its monetary policy unchanged, and indicated that it would further discuss its quantitative easing program in the fall.  The BOJ, meanwhile, pushed back (for the sixth time) by a year the date when inflation in Japan should hit 2%.  Late in the month, the Commerce Department reported that US GDP grew at an annualized rate of 2.6% in the second quarter.  The US job report showed that 222,000 non-farm jobs were added in June, the unemployment rate ticked higher to 4.4%, and the labor force participation rate rose slightly to 62.8%. 

Notable corporate transactions announced in July included the $875 million sale of Stonyfield by Danone to Lactalis, Monomoy Capital’s $338 million acquisition of West Marine, the $3 billion purchase of Monogram Residential Trust by Greystar Real Estate Partners, the $10 billion merger of Worldpay and Vantiv, EQT’s $875 million acquisition of Global Gateway South, the acquisition of Ambry Genetics by Konica Minolta for $1 billion, the $605 million purchase of Lloyd’s of London insurer Novae by Axis Capital, the $1.24 billion acquisition of Bankrate by Red Ventures, the $2.1 billion merger of QVC and HSN, Campbell Soup’s $700 million acquisition of Pacific Foods, the $1,1 billion acquisition of ClubCorp by Apollo Global Management, the $1.4 billion sale of Halcon Resources’ Williston Basin assets to Bruin E&P Partners, the $1.1 billion acquisition of Dow Chemical’s corn seed business in Brazil by a unit of CITIC, the $1.25 billion purchase of GCA Services by ABM, the $1.3 billion acquisition of Constantia Flexibles by Multi-Color, the Washington Companies’ $1.2 billion purchase of Dominion Diamond, Church & Dwight’s $1 billion purchase of Water Pik, the $7.1 billion acquisition of Lightower by Crown Castle, the purchase of Reckitt Benckiser’s food division by McCormick for $4.2 billion, Hydro One’s $5.3 billion purchase of Avista, the $2.8 billion acquisition of WebMD by KKR, the $6 billion purchase of Nature’s Bounty by KKR from Carlyle Group, Michael Kors’ $1.2 billion acquisition of Jimmy Choo, Laboratory Corp’s $1.2 billion purchase of Chiltern, and Discovery’s $14.6 billion acquisition of Scripps Networks.

Developed market equities were mostly higher in July (see page 8), with the largest gains in Italy (+3.8%), Hong Kong (+3.8%), and the S&P500 (+2%); the worst performing were Germany (-1.5%), France (-0.5%), and Canada (+0.1%).  US small caps underperformed large caps, with the Russell 2000 up 0.7% and the Russell 1000 up 2% (see page 3).  Telecom (+6.4%), IT (+4.3%), and Energy (+2.5%) were the best performing sectors in July, while Industrials (+0.1%), Consumer Staples (+0.6%), and Health Care (+0.8%) were the worst performing (see page 2).  Large cap value (+1.3%) underperformed large cap growth (+2.7%) in July (see page 3).  Emerging market equities were mostly higher in July (see page 9), with the biggest gains in China (+8.9%), India (+6.9%), and Russia (+5.4%); Argentina (-6.8%), Malaysia (-0.1%), and Indonesia (+0.2%) were the worst performing. 

In currencies, the USD Index was down 2.9% in July (see page 10).  The strongest developed market currencies against the USD were the Norwegian Krone (+6.2%), Swedish Krona (+4.5%), and Australian Dollar (+4.1%); the Swiss Franc was down 0.9%.  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Brazilian Real (+5.8%), Korean Won (+2.3%), and Mexican Peso (+1.8%) and losses in the Russian Ruble (-2.3%) and South African Rand (-0.7%).

The US Treasury yield curve was little changed in July (see page 12).  10 year rates closed the month at 2.29%, down slightly from 2.31% at June month end.  Investment grade and high yield credit spreads tightened in July (see page 13).

In commodities, the GSCI index was up 4.6% in July (see page 11), with gains in Energy (+8.1%), Industrial Metals (+3.4%), and Precious Metals (+1.9%), and losses in Agriculture (-0.9%) and Livestock (-4.2%).  Within individual commodities, Gasoline (+12.4%), Heating Oil (+12.2%), and Coffee (+10.9%) saw the biggest gains, while Wheat (-9.7%), Natural Gas (-7.6%), and Lean Hogs (-6.3%) saw the biggest losses.  Gold was up 2% for the month.

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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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