May was another mixed month for global risk assets. Developed market equities outperformed emerging market equities, small caps outperformed large caps, the US Dollar strengthened, and commodities retreated. Job growth rebounded, as the May jobs report showed that employers added 223,000 positions in April and the unemployment rate decreased to 5.4%. Q1 GDP growth was revised down from the original estimate of positive 0.2% to negative 0.7%. Minutes from the April Federal Reserve policy meeting showed that most officials viewed this weakness as being caused by temporary factors such as a cold winter and disruptions at West Coast ports and that a rebound was likely. Most analysts now expect no increase in interest rates until September at the earliest, with some suggesting that we may not see any increase in rates until 2016.
Notable corporate transactions announced in May included a $8.4 billion purchase of Synageva by Alexion, DTZ’s $2 billion acquisition of Cushman & Wakefield, Noble Energy’s $2.1 billion purchase of Rosetta Resources, AOL’s $4.4 billion sale to Verizon, Williams’ $33 billion purchase of affiliate Williams Partners, Danaher’s $13.8 billion acquisition of Pall Corp., Owens-Illinois’ $2.2 billion purchase of the food and beverage glass container business of Vitro, Ann Inc.’s $2.2 billion sale to Ascena Retail Group, Endo International’s $8 billion purchase of Par Pharmaceutical, Alrice’s $9.1 billion purchase of a controlling interest in Suddenlink, CVS Health’s $12.7 billion acquisition of Omnicare, Charter Communications’ $55 billion merger with Time Warner Cable, EMC’s $1.2 billion acquisition of Virtustream, and Avago’s $37 billion purchase of Broadcom.
Developed market equity markets were mixed in May (see page 8). Japan (+5%), Italy (+2.1%), and the S&P500 (+1.2%) saw the biggest gains, while Canada (-1.6%), Spain (-1.2%) and Germany (-0.7%) saw the biggest losses. US small caps outperformed, with the Russell 2000 up 2.3% (see page 2). Healthcare (+4.5%), IT (+2.3%), and Financials (+1.8%) were the best performing sectors in May, while Energy (-4.8%), Telecom (-1.8%), and Industrials (+0.3%) were the worst performing (see page 2). Large cap growth (+1.4%) slightly outperformed large cap value (+1.2%) in May (see page 3). Emerging Market equities were mixed in May (see page 9), with the biggest gains in Indonesia (+4.8%), India (+3.4%), and Mexico (+0.8%); Argentina (-8.6%), Brazil (-6%), and Russia (-4.3%) were the worst performing.
In currencies, the USD Index strengthened 2.4% in May (see page 10) and was stronger against all major developed market currencies. The weakest developed market currencies against the USD were the New Zealand Dollar (-6.7%), Japanese Yen (-3.8%), and Australian Dollar (-3.3%). The USD was also stronger against most emerging market currencies with the biggest losses seen in the Brazilian Real (-5.2%), Korean Won (-3.3%), and Malaysian Ringgit (-2.3%); the Turkish Lira (+0.3%) strengthened against the USD (see page 10).
The US Treasury yield curve steepened in May (see page 12). 10 year rates closed the month at 2.12%, up from 2.03% at April month end. Investment grade and high yield credit spreads were little changed in May (see page 13).
In commodities, the GSCI index fell 2% in May (see page 11), with gains in Livestock (+2.5%) and Precious Metals (+0.9%) and losses in Industrial Metals (-7.9%), Agriculture (-3.5%) and Energy (-1.5%). Within individual commodities, Cocoa (+4.8%), Feeder Cattle (+3.8%), and Silver (+3.4%) led gains, while Aluminum (-11%), Sugar (-9.1%), and Coffee (-8.2%) saw the biggest losses. Gold was up 0.5% in May.
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