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Wednesday, July 1, 2015

June 2015 - Monthly Market Commentary

June was another mixed month for global risk assets. Developed and emerging market equities mostly retreated, small caps outperformed large caps, the US Dollar weakened, commodities were mixed, and US interest rates moved higher. US job growth continued to rebound, as the June jobs report showed that employers added 280,000 positions in May with upward revisions for April and March; the unemployment rate increased to 5.5% as the growth in the number of job seekers outpaced jobs available. At the Federal Reserve’s June policy meeting, the central bank signaled that it’s on track to raise interest rates for the first time since 2006 as early as September, but that the pace of future increases is likely to be more gradual than it previously anticipated.

Notable corporate transactions announced in June included a $16.7 billion purchase of Altera by Intel, General Electric’s $12 billion sale of its private equity lending unit to CPPIB, Tokio Marine’s $7.5 billion acquisition of HCC Insurance, the $5.2 billion merger of Standard Pacific and Ryland Group, Hudson Bay’s $3.2 billion purchase of Galeria Kaufhof from Metro, Allergan’s $2.1 billion acquisition of Kythera Biopharmaceuticals, Intel’s $175 million purchase of Recon, the $353 million sale of Martha Stewart Living to Sequential Brands Group, General Electric’s $6.9 billion sale of its fleet management businesses in the US, Mexico, Australia and New Zealand to Element Financial, the $18 billion merger of Willis Group and Towers Watson, and the $29 billion merger of Ahold and Delhaize.

Developed market equity markets were lower in June (see page 8); Australia (-4.6%), the UK (-3.6%) and Canada (-2.9%) saw the biggest losses. US small caps outperformed, with the Russell 2000 up 0.7% and the S&P500 down 1.9% (see page 2). Consumer Discretionary (+0.6%), Healthcare (-0.3%), and Financials (-0.3%) were the best performing sector in June, while Utilities (-6%), Information Technology (-4.3%), and Materials (-3.9%) were the worst performing (see page 2). Large cap growth (-1.8%) slightly outperformed large cap value (-2%) in May (see page 3). Emerging Market equities were mixed in June (see page 9), with the biggest gains in Russia (+1.9%), Brazil (+1%), and Mexico (+0.8%); Indonesia (-6.4%), China (-5.6%), and Argentina (-4.3%) were the worst performing.

In currencies, the USD Index weakened 1.5% in June (see page 10). The weakest developed market currencies against the USD were the New Zealand Dollar (-4.8%), Norwegian Krone (-1.1%), and Canadian Dollar (-0.3%), while the British Pound (+2.8%), Swedish Krona (+2.7%), and Euro (+1.5%) strengthened against the USD. The USD was also mixed against emerging market currencies with the biggest losses seen in the Russian Ruble (-5.4%), Malaysian Ringgit (-2.6%), and the Mexican Peso (-2.3%); the Brazilian Real (+2.4%) and Indian Rupee (+0.3%) strengthened against the USD (see page 10).

The US Treasury yield curve steepened in June (see page 12). 10 year rates closed the month at 2.35%, up from 2.12% at May month end. Investment grade and high yield credit spreads moved higher in June (see page 13).

In commodities, the GSCI index was down 0.1% in June (see page 11), with gains in Agriculture (+15.5%) and losses in Industrial Metals (-5%), Livestock (-4.7%), Energy (-2.3%), and Precious Metals (-2.1%). Within individual commodities, Wheat (+27.5%), Corn (+17.7%), and Soybeans (+14.3%) led gains, while Palladium (-13.4%), Lean Hogs (-10.3%), and Silver (-7%) saw the biggest losses. Gold was down 1.5% in June.

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