June brought renewed strength in global risk assets and a continuation of low volatility across all major asset classes. Global equity markets continued their relentless climb, with small caps once again reclaiming their leadership in the rally. Another solid monthly jobs report, which showed that 217,000 jobs were added in May, heartened bulls as total payrolls finally surpassed pre-crisis highs. The unemployment rate held steady at 6.3%, as did the workforce participation rate at 62.8%, a level last seen in the 1970s. While the Federal Reserve cut its monthly asset purchases by another $10 billion to a monthly rate of $35 billion, Chair Yellen played down concerns about accelerating inflation and possible asset bubbles and indicated that interest rates are likely to stay low for a ‘considerable time’.
Global M&A activity continued at a brisk pace in June. Notable deals announced in June included Ventas Inc’s agreement to purchase American Realty Capital Healthcare Trust for $2.6 billion, America Realty Capital Hospitality’s purchase of a group of hotels from funds managed by Goldman Sachs for $1.9 billion, Det Norske’s acquisition of Marathon Oil’s Norwegian assets for $2.7 billion, Dai-Ichi Life’s $5.7 billion purchase of Protective Life, Merck’s $3.9 billion purchase of Idenix, Tyson Foods’ $7.7 billion acquisition of Hillshire Brands, Analog Devices’ $2 billion purchase of Hittite Microwave, Google’s $500 million purchase of Skybox Imaging, Priceline’s $2.6 billion acquisition of OpenTable, Medronic’s $42.9 billion acquisition of Covidien, Williams’ $6 billion deal to acquire the remaining 50% of GP interests in Access Midstream Partners, Level 3’s $5.6 billion purchase of TW Telecom, GE’s sweetened $17 billion deal for Alstom’s power equipment unit (announced together with a series of JVs between the two companies), Oracle’s $5.3 billion purchase of Micros Systems, Wisconsin Energy’s $5.7 billion acquisition of Integrys Energy, William Lyon Homes’ $520 million purchase of a residential building business from Polygon Northwest, Etihad Airways’ purchase of a 49% stake in Alitalia for an undisclosed price, London Stock Exchange’s $2.7 billion acquisition of Frank Russell, Alcoa’s $2.9 billion purchase of Firth Rixson, Encana’s sale of its Bighorn assets in Alberta to Apollo Global for $1.8 billion, and TUI Travel’s $9.7 billion merger with its majority shareholder TUI AG.
Developed market equity markets mostly rose in June (see page 7), as Japan (+4.8%), Canada (+3.9%), and the S&P500 (+2%) led gains. US small caps rose sharply with the Russell 2000 up 5.3% (see page 4). Energy (+5.1%), Utilities (+4.5%), and Financials (+2.4%) were the best performing US sectors (see page 2), while Telecom (-1.1%), Consumer Staples (-0.2%) and Industrials (+0.3%) were the worst performing. Large cap growth (+1.9%) underperformed large cap value (+2.6%) in June (see page 3). Emerging Market equities were higher in June (see page 8), with the biggest gains in Argentina (+11.7%), India (+5.8%), and Thailand (+5.6%).
In currencies, the USD Index weakened 0.7% in June (see page 9). Gains against the USD were led by the New Zealand Dollar (+3%) and the British Pound (+2.1%), while the Norwegian Krone (-2.6%) weakened. The USD was mixed against emerging market currencies with the biggest gains in the Russian Ruble (+2.7%), Brazilian Real (+1.3%), and the Thai Baht (+1.2%); the Indonesian Rupiah (-1.6%), Indian Rupee (-1.2%) and Turkish Lira (-1%) weakened against the USD.
The US Treasury yield curve flattened slightly in June (see page 11). 10 year rates closed the month at 2.53%, down from 2.48% at April month end. Investment grade and high yield credit spreads tightened slightly in June (see page 12), while European sovereign spreads continued to grind lower (see page 13).
In commodities, the GSCI index rose (+2.1%) in June (see page 10), with gains in Livestock (+7.5%), Precious Metals (+6.9%), Energy (+3.2%), and Industrial Metals (+2.5%), and losses in Agriculture (-7.1%). Within individual commodities, Silver led gains (+12.5%), followed by Live Cattle (+8.3%), Feeder Cattle (+8%), and Lean Hogs (+6.4%); Wheat (-9.7%), Corn (-9.4%), Soybeans (-8.2%), and Cotton (-6.1%) weakened; Gold rose 6.1%.
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