January was a mixed month for global risk assets. The US dollar continued its recent surge higher, commodities weakened with the exception of precious metals, while US equities underperformed most developed and emerging markets. The Swiss National Bank shocked markets with its decision to remove the cap of 1.20 francs per euro, initially causing the Swiss franc to strengthen by 40%. The US monthly jobs report showed strong hiring in December with a 252,000 advance in payrolls (ending a year in which almost 3 million US jobs were added, the biggest gain since 1999); the unemployment rate fell to 5.6%. Towards the end of January, the Federal Reserve announced that it would not raise short term interest rates before June as they continue to balance strong economic and job growth with slowing inflation.
Global M&A activity started strongly in January. Notable announced deals included Gilead’s acquisition of Phenex Pharmaceuticals’ NASH development program for up to $470 million, Cheung Kong’s $24 billion buyout of Hutchinson Whampoa with a planned spinoff of its property assets, XL Group’s $4.2 billion purchase of Catlin Group, Shire’s $5.2 billion acquisition of NPS Pharmaceuticals, Roche’s $1 billion purchase of a stake in Foundation Medicine, AmerisourceBergen’s $2.5 billion acquisition of MWI Veterinary Supply, Schlumberger’s $1.7 billion acquisition of a minority stake in Eurasia Drilling, RBC’s $5.4 billion purchase of City National, Hutchinson Whampoa’s $15.4 billion acquisition of Telefonica’s O2 unit, AXIS Capital’s $14 billion merger with PartnerRe, MeadWestvaco’s $8.4 billion merger with Rock-Tenn, and Commscope’s $3 billion purchase of TE Connectivity.
Developed market equity markets were mixed in January (see page 7). Germany (+9.1%), France (+8%), and Italy (+7.2%) saw the biggest gains, while the S&P 500 (-3%) finished lower. US small caps underperformed, with the Russell 2000 down 3.2% and the Russell 1000 down 2.7% (see page 2). Utilities (+2.4%) and Healthcare (+1.2%) were the best performing US sectors, while Financials (-6.9%), Energy (-4.8%), and IT (-3.8%) were the worst performing (see page 1). Large cap value (-4%) underperformed large cap growth (-1.5%) in January (see page 2). Emerging Market equities were mostly higher in January (see page 8), with gains in Russia (+12.9%), India (+5.9%), and the Philippines (+5.4%) and the biggest losses in Brazil (-5.5%), Argentina (-5.2%), and Mexico (-4.5%) (see page 8).
In currencies, the USD Index strengthened 5% in January (see page 9). The weakest developed market currencies against the USD were the Canadian Dollar (-8.7%), the New Zealand Dollar (-6.9%) and the Euro (-6.7%). The USD was stronger against most emerging market currencies with the biggest gains against the Russian Ruble (-16.3%), Turkish Lira (-4.5%), and the Malaysian Ringgit (-3.5%) (see page 9).
The US Treasury yield curve flattened in January (see page 11). 10 year rates closed the month at 1.64%, down sharply from 2.17% at December month end. Investment grade and high yield credit spreads widened in January (see page 12).
In commodities, the GSCI index fell 7.5% in January (see page 10), with losses in Energy (-8.7%), Livestock (-7.8%), Agriculture (-7.5%), and Industrial Metals (-5.5%); gains were seen in Precious Metals (+8.2%). Within individual commodities, Wheat led losses (-14.8%), followed by Lean Hogs (-12.6%), Copper (-12.4%), Crude Oil (-10.5%), and Brent Crude (-9.6%); Silver (+10.3%), Gold (+8%), Platinum (+2.4%), and Sugar (+1.9%) gained.
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