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Wednesday, April 1, 2015

March 2015 - Monthly Market Commentary

March was a mixed month for global risk assets.  Global equity markets were mixed, US small caps outperformed large caps, energy commodities retreated, credit spreads widened, and US Treasuries gained.  The Federal Reserve surprised investors with a more dovish than expected statement; while the Fed removed the word ‘patient’ from its plans to increase interest rates, Chairwoman Yellen explained that this “doesn’t mean we’re going to be impatient”.  Earlier in the month, the US monthly jobs report showed continued strong hiring in February with a 295,000 advance in payrolls; the unemployment rate fell to 5.5%, the lowest level since March 2008.  This was the 12th straight month that more than 200,000 jobs were added, the longest such streak since 1995.  In Europe, the ECB launched its long-awaited quantitative easing program with monthly purchases of 60 billion euros; European equities outperformed in March.  Not to be outdone, Sweden’s Riksbank lowered its benchmark rate to minus 0.25% and said it would buy 30 billion Swedish kronor; the kronor fell 3.4% against the USD on the month.

Global M&A activity continued apace in March.  Notable announced deals included NXP Semiconductors’ acquisition of Freescale Semiconductor for $11.8 billion, Hewlett-Packard’s purchase of Aruba Networks for $2.7 billion, Springleaf Holdings’ acquisition of Citigroup’s OneMain Financial unit for $4.25 billion, AbbVie’s $21 billion purchase of Pharmacyclics, Alcoa’s acquisition of RTI International Metals for $1.26 billion, Verisk Analytics’s $2.8 billion purchase of Wood Mackenzie from Hellman & Friedman, the $6.26 billion purchase of GE Capital’s consumer lending business in Australia and New Zealand by an investor group including KKR and Deutsche Bank, Lexmark’s acquisition of Kofax for $1 billion, the $49 billion merger of Kraft and Heinz, Dow Chemical’s $5 billion split off of a significant portion of its chlorine business and merger with Olin, Dufry’s $3.9 billion purchase of World Duty Free, UnitedHealth’s $12.8 billion acquisition of Catamaran, and Charter Communications’ $10.4 billion purchase of Bright House Networks.

Developed market equity markets were mixed March (see page 8).  Germany (+4.8%), Spain (+3.6%), and Italy (+2.9%) saw the biggest gains, while the UK (-2%), Canada (-1.9%) and the S&P 500 (-1.6%) saw the biggest losses.  US small caps outperformed, with the Russell 2000 up 1.7% (see page 2).  Healthcare (+0.9%) was the only US sector in positive territory in March, while Materials (-4.7%), Telecom (-3.7%), and IT (-3.3%) were the worst performing (see page 2).  Large cap growth (-1.1%) slightly outperformed large cap value (-1.4%) in March (see page 3).  Emerging Market equities were also mixed in March (see page 9), with the biggest gains in Argentina (+9.7%), the Philippines (+2.7%), and Indonesia (+2.6%); Russia (-7.4%), India (-2.9%), and Taiwan (-1.1%) were the worst performing.  

In currencies, the USD Index strengthened 3.2% in March (see page 10).  The weakest developed market currencies against the USD were the Norwegian Krone (-4.6%), Euro (-4.2%), and British Pound (-4%).  The USD was also stronger against most emerging market currencies with the biggest gains against the Brazilian Real (-10.7%), Turkish Lira (-3.4%), and Malaysian Ringgit (-2.4%); the Russian Ruble (+8.3%), Chinese Yuan (+1.1%), and Taiwan Dollar (+0.6%) strengthened against the USD (see page 10).

The US Treasury yield curve flattened in March (see page 12).  10 year rates closed the month at 1.92%, down from 1.99% at February month end.  Investment grade and high yield credit spreads widened in February (see page 13).

In commodities, the GSCI index fell 6.8% in March (see page 11), with gains in Livestock (+3.1%) and losses in Energy (-10%), Agriculture (-4.3%), Precious Metals (-2.2%) and Industrial Metals (-0.1%).  Within individual commodities, Feeder Cattle led gains (+9%), followed by Live Cattle (+6.1%), and Copper (+2.6%); Sugar (-13.4%), Brent Crude (-12.3%), Heating Oil (-12.3%), Cocoa (-10.5%), and Gasoline (-10.3%) moved lower.  Gold was down 2.6% in March.

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