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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Wednesday, October 1, 2014

September 2014 - Monthly Market Commentary

September was a difficult month for global risk assets as continued geopolitical tensions weighed on markets.  Global equity markets mostly fell with small caps leading the decline, developed and emerging market currencies declined against the US Dollar, commodities largely fell, and credit spreads widened.  The US monthly jobs report was weaker than expected, showing that employers added 142,000 jobs in August, with the unemployment rate ticking down slightly to 6.1%.  The September meeting of the Federal Reserve did not bring any meaningful surprises, as the central bank reduced its monthly asset purchases by an additional $10 billion and maintained its “considerable time” language regarding how long interest rates would remain near zero.
Global M&A activity remained robust in September.  Notable deals announced included Norwegian Cruise’s acquisition of Prestige Cruises for $3.0 billion, Compuware’s acquisition by Thoma Bravo for $2.5 billion, Electrolux’s $3.3 billion acquisition of GE Appliances, Eastman Chemical’s $1.8 billion acquisition of Taminco Corp, Cognizant’s $2.7 billion purchase of TriZetto, Danaher’s $2.2 billion purchase of Nobel Biocare, Microsoft’s $2.5 billion acquisition of Mojang, General Mills’ $820 million purchase of Annie’s, TRW’s $11.7 billion sale to ZF Friedrichshafen, Washington Prime’s $4.3 billion acquisition of Glimcher Realty,’s $1.5 billion acquisition of the remaining stake in Vkontakte, Vivendi’s sale of GVT to Telefonica for $9.3 billion, SAP’s $7.4 billion purchase of Concur Technologies, Siemens’ $7.6 billion acquisition of Dresser-Rand, Merck KGaA’s $17 billion purchase of Sigma-Aldrich, Encana’s $5.9 billion acquisition of Athlon Energy, Tibco Software’s $4.3 billion sale to Vista Equity, and J&J’s $1.75 billion acquisition of Alios BioPharma.
Developed market equity markets were generally weaker in September (see page 7).  Hong Kong (-7%), Australia (-5.3%) and Canada (-3.7%) suffered the biggest losses; Japan (+4.8%), Italy (+2.5%), and Spain (+1%) saw gains.  US small caps underperformed, with the Russell 2000 down 6%, while the Russell 1000 was down 1.8% (see page 3).  Consumer Staples (+0.6%), Health Care (+0.4%), and Telecom (+0.4%) were the best performing US sectors, while Energy (-7.6%), Consumer Discretionary (-2.8%) and Utilities (-1.9%) were the worst performing (see page 2).  Large cap growth (-1.5%) outperformed large cap value (-2.1%) in September (see page 3).  Emerging Market equities were mixed in September (see page 8), with the biggest gains in Argentina (+11.7%), the Philippines (+3.5%), and Thailand (+1.9%) and the biggest losses in Brazil (-11.6%), China (-6.2%), and Taiwan (-5.4%).  
In currencies, the USD Index strengthened 3.9% in September (see page 9).  The weakest developed market currencies against the USD were the New Zealand Dollar (-6.6%), the Australian Dollar (-6.3%) and the Japanese Yen (-5.1%).  The USD also strengthened against emerging market currencies with the biggest gains against the Brazilian Real (-8.4%), Russian Ruble (-6.4%), and the Turkish Lira (-5.1%).
US Treasury yields increased across the curve in September (see page 11).  10 year rates closed the month at 2.49%, up from 2.34% at August month end.  Investment grade and high yield credit spreads widened in September (see page 12); European sovereign spreads held steady and 2 year US swap spreads widened (see page 13).
In commodities, the GSCI index fell 6% in September (see page 10), with losses in Agriculture (-10.8%), Precious Metals (-6.7%), Energy (-6.3%), and Industrial Metals (-6.1%); gains were seen in Livestock (+6.2%).  Within individual commodities, Wheat led losses (-15.2%), followed by Palladium (-14.8%), Silver (-12.5%), and Corn (-12.1%); Feeder Cattle (+9.3%), Live Cattle (+6.3%), Lean Hogs (+4.6%), and Cocoa (+2.2%) gained; Gold fell 5.9%.
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