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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