January saw a continuation of 2013 market trends in some asset classes (EM currencies & equities, USD, outperformance of DM equities vs EM) and a sharp reversal in other asset classes (US Treasuries, gold, DM equities, JPY, US credit spreads). EM weakness dominated news headlines as countries such as Turkey, Argentina, South Africa, and Ukraine struggled to contain a combination of economic, fiscal, and political challenges; while EM weakness has been with us for some 7-8 months now, the turn of the calendar seemed to be the catalyst that spilled that weakness into developed markets. A weak December US jobs report, an additional $10 billion taper by the Federal Reserve, and weak Q4 earnings results by the likes of Apple, Amazon, Walmart and Mastercard contributed to a risk-off January.
Despite stock market weakness, January was a very strong month for strategic corporate activity. Notable deals announced in January included Cox Enterprises’re-acquisition of a 25% stake in AutoTrader for $1.8 billion, FireEye’s $1 billion acquisition of cybersecurity rival Mandiant, T-Mobile’s acquisition of wireless spectrum from Verizon for $2.4 billion in cash and $950 million of other spectrum, GE’s $1.1 billion acquisition of several life-science businesses from Thermo Fisher Scientific, Sandvik AB’s $740 million acquisition of Varel International Energy Services, AMEC’s $3.2 billion acquisition of Foster Wheeler, Suntory’s $16 billion acquisition of Beam Inc., Google’s $3.2 billion acquisition of Nest Labs, OCBC’s $5 billion acquisition of Wing Hang Bank, Liberty Global’s $9.4 billion acquisition of Dutch cable company Ziggo, KKR’s $2.4 billion deal to acquire a majority stake in Sedgeick, Itau’s $2.85 billion acquisition of Chile’s Corpbanca, Lenovo’s $2.9 billion acquisition of Motorola Mobility from Google, and Zynga’s $527 million acquisition of NaturalMotion.
Developed market equity markets mostly fell in January (see page 6), led by Japan (-6.7%), Hong Kong (-5.5%), and the UK (-3.6%); the US S&P500 ended down 3.5%. US small caps outperformed with the Russell 2000 down 2.8% (see page 3). Utilities (+3%) and Health Care (+0.9%) were the best performing US sectors (see page 2), while Energy (-6.3%) and Consumer Discretionary (-5.9%) were the worst performing. Large cap growth (-2.9%) outperformed large cap value (-3.6%) in January (see page 3). Emerging Market equities were mostly lower in January (see page 7), with the biggest losses in Argentina (-23.9%), Brazil (-8.2%), and China (-6.6%) and gains in Indonesia (+4.6%) and the Philippines (+2.4%).
In currencies, the USD Index gained 1.6% in January (see page 8). Weakness was seen against the USD in the Canadian Dollar (-4.5%), Norwegian Krone (-3.3%), and Euro (-1.9%), while the Yen strengthened 3.2%. The USD strengthened against emerging market currencies with the biggest losses in the Russian Ruble (-6.4%), Turkish Lira (-5%), and Korean Won (-2.6%).
US Treasuries rallied in January, most strongly at the longer end of the curve (see page 10). 10 year rates closed the month at 2.67%, down from 3.03% at year end. Investment grade and high yield US credit spreads widened in January (see page 11). European sovereign spreads were mixed in January, with Portugal tighter and Italy wider (see page 12).
In commodities, the GSCI index closed down 1.6% in January (see page 9), led by losses in Industrial Metals (-4.3%), Energy (-2%), and Agriculture (-1.3%); gains were seen in Precious Metals (+2.5%) and Livestock (+4%). Within individual commodities, Natural Gas led gains (+18%), followed by Coffee (+13.1%), Lean Hogs (+4.6%), and Live Cattle (+4.1%); Wheat was the weakest performer (-8.2%), followed by Aluminum (-6.1%), Gasoline (-6%), and Sugar (-5.2%); Gold finished the month up 3.1%.
Contact CurAlea Associates for a Daily Market Review.