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Friday, November 1, 2013

October 2013 - Monthly Market Commentary

Global risk assets rallied in October following a short term resolution of the US government shutdown and a delay in the enforcement of the US debt ceiling.  While the last minute Congressional agreement provides funding for US federal government agencies only through January 15 and allows the US government to continue borrowing only until February 7, global markets advanced on the avoidance of a US debt default and credit rating downgrade.  Continued central bank accommodation, including the October 30 Federal Reserve decision to continue its monthly $85 billion bond purchases, also provided a boost to global risk assets.

Notable corporate mergers announced in October included American Realty’s $7 billion purchase of Cole Real Estate, McKesson Corp’s $5.4 billion acquisition of German pharmaceutical retailer Celesio, and Advance Auto Parts’ $2 billion purchase of competitor General Parts International.  Japanese conglomerate Softbank announced a $1.5 billion investment in Finnish mobile game developer Supercell and a $1.3 billion investment in mobile phone distributor Brightstar.

With the exception of Japan, which was flat on the month, all major developed market equity markets rose in October (see page 6), led for the second consecutive month by Spain (+8.8%) and followed by Germany (+5.3%) and Canada (+4.8%).  The S&P 500 rose 4.6%, while US small caps underperformed with the Russell 2000 up 2.5% (see page 3); YTD the Russell 2000 has outperformed the S&P500 by 5.6.% (30.9% vs 25.3%).  Telecom (+8.5%) and Consumer Staples (+6.4%) were the best performing US sectors (see page 2), while Financials (+3.3%) and Utilities (+3.8%) were the worst performing; YTD Utilities has been the worst performing sector (+14.3%), while Consumer Discretionary has been the best performing sector (+35.1%).  Large cap growth and large cap value performed in line in October with both +4.4% (see page 3).  Emerging Market equities also rallied (see page 7), led by India (+8.5%), Argentina (+7.9%), the Philippines (+7.1%), and Indonesia (+6.5%).   

In currencies, the USD Index was flat in October (see page 8).  Strength was seen against the USD in the Australian Dollar (+1.5%), Norwegian Krone (+1.2%), and Euro (+0.4%), while weakness was seen in the Canadian Dollar (-1.2%), British Pound (-0.9%), and Swedish Krona (-0.8%).  The USD weakened against most emerging market currencies with the exception of the Brazilian Real (-0.8%); the strongest emerging market currencies were the Malaysian Ringgit (+3%), Indonesian Rupiah (+2.2%), Korean Won (+1.4%), and Singapore Dollar (+1.2%).

US Treasuries rallied slightly in October except at the very short end of the curve (see page 10), more than recovering the debt ceiling induced selloff in the first half of the month.  10 year rates closed the month at 2.55%, down slightly from 2.61% at September month end and down from the recent 9/6 intraday high of 3.00%.  Investment grade and high yield US credit spreads tightened in October to levels near YTD lows (see page 11).  European sovereign spreads also tightened in October, with Spain and Italy closing the month at the tightest levels since July 2011 (see page 12).

In commodities, the GSCI index closed down 1.4% in October (see page 9), led by weakness in Agriculture (-2.5%) and Energy (-1.6%); gains were seen in Livestock (+1.1%), while Industrial Metals (+0.2%) and Precious Metals (-0.1%) were roughly flat.  Within individual commodities, Lean Hogs led gains (+2.9%), followed by Platinum (+2.6%), Brent Crude (+1.8%), and Palladiun (+1.3%); Cotton was the weakest performer (-11.5%), followed by Coffee (-7.3%), Crude Oil (-5.7%), Natural Gas (-3.5%), and Corn (-3%).  Gold was roughly flat on the month (-0.2%).

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