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

Tuesday, August 4, 2015

July 2015 - Monthly Market Commentary

July was a difficult month for global risk assets.  Developed market equities outperformed emerging market equities, large caps outperformed small caps, the US Dollar strengthened, commodities were sharply lower, and the US interest rate curve flattened.  The US job report showed 223,000 jobs were added in June, bringing the unemployment rate to 5.3%, the lowest since April 2008, though the labor force participation rate fell to 62.6%, the lowest since 1977.  At the Federal Reserve’s July policy meeting, the central bank left its benchmark interest rate unchanged at zero, but signaled that it remains on track to raise interest rates before year end; with three remaining policy meetings in 2015, pundits are busy speculating about which meeting might bring the first rate hike.  Second quarter annualized GDP growth was 2.3%, while first quarter growth was revised higher to 0.6% (from a 0.2% contraction); the revision brought growth estimates for the first half of the year to 1.5%.  Additional historical revisions reduced annualized GDP growth estimates from 2012-2014 to 2%, 0.3% lower than previous estimates.
Notable corporate transactions announced in July included a $28.3 billion purchase of Chubb by ACE, Aetna’s $37 billion acquisition of Humana, PayPal’s $890 million purchase of Xoom, Procter & Gamble’s $12.5 billion sale of its beauty business to Coty, MPLX’s $21 billion purchase of MarkWest Energy, Celgene’s $7.2 billion acquisition of Receptos, Lockheed’s $9 billion purchase of Sikorsky from United Technologies, SunEdison’s $2.2 billion acquisition of Vivint Solar, St Jude Medical’s $3.4 billion purchase of Thoratec, Pearson’s $1.3 billion sale of the Financial Times to Nikkei, Anthem’s $48 billion acquisition of Cigna, Teva’s $40.5 billion purchase of Allergan’s generics business, Solvay’s $5.5 billion acquisition of Cytec Industries, and UPS’ $1.8 billion purchase of Coyote Logistics.
Developed market equity markets were mostly higher in July (see page 8) as France (+5%), Italy (+4.1%) and Spain (+3.7%) saw the biggest gains and Canada (-3.7%), Hong Kong (-1.7%), and Australia (-0.2%) saw the biggest losses.  US small caps underperformed, with the Russell 2000 down 1.2% and the S&P500 up 2.1% (see page 2).  Utilities (+6.1%), Consumer Staples (+5.5%), and Consumer Discretionary (+4.8%) were the best performing sector in July, while Energy (-7.7%) and Materials (-5%) were the worst performing (see page 2).  Large cap growth (+3.4%) outperformed large cap value (+0.4%) in July (see page 3).  Emerging Market equities were mostly lower in July (see page 9), with the biggest losses in China (-10.8%), Argentina (-10.1%), and Taiwan (-5.1%); India (+2.5%), Russia (+1.5%), and Malaysia (+1%) were the best performing. 
In currencies, the USD Index strengthened 1.9% in July (see page 10).  The weakest developed market currencies against the USD were the Australian Dollar (-5.2%), Canadian Dollar (-4.5%), and Norwegian Krone (-3.9%).  The USD was also stronger against emerging market currencies with the biggest losses seen in the Russian Ruble (-10.3%), Brazilian Real (-9.3%), and the Korean Won (-4%) (see page 10).
The US Treasury yield curve flattened in July (see page 12).  10 year rates closed the month at 2.18%, down from 2.35% at June month end.  Investment grade and high yield credit spreads were little changed in July (see page 13).
In commodities, the GSCI index was down 14.1% in July (see page 11), with losses in Energy (-17.4%), Agriculture (-12.4%), Industrial Metals (-6.9%), Precious Metal (-6.6%), and Livestock (-2.4%).  Within individual commodities, Crude Oil (-21.5%), Wheat (-18.9%), and Brent Crude (-18.2%) led losses, while Lean Hogs (+0.5%) moved slightly higher.  Gold was down 6.7% in July.

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