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Tuesday, September 1, 2015

August 2015 - Monthly Market Commentary

August was a difficult month for global risk assets.  Global equities sold off sharply, the US Dollar strengthened versus emerging market and commodity currencies, but weakened versus the Euro and Yen, and credit spreads widened.  The big macro headline for the month was China’s devaluation of the Yuan on August 11, sparking a risk off mentality across all asset classes for the rest of the month, and removing the Greek financial crisis from the front page.  A few days earlier, the US job report showed 215,000 jobs were added in July, while the unemployment rate and labor force participation rate both held steady at 5.3% and 62.6%, respectively.  Late in the month, US 2nd quarter GDP growth was revised higher to a seasonally adjusted annual rate of 3.7%, from the initial estimate of 2.3%.  All eyes are now on the Federal Reserve’s September policy meeting, where the central bank will have to balance a steadily improving US job market with low inflation and the recent turmoil and heightened volatility in global asset markets. 
Notable corporate transactions announced in August included Exor’s $6.9 billion purchase of PartnerRe, Banco Bradesco’s $5.2 billion acquisition of HSBC’s Brazil business, IBM’s $1 billion purchase of Merge, Qualcomm’s $47 million purchase of Ikanos, Silver Lake’s $1 billion investment in Motorola Solutions, Berkshire Hathaway’s $37.2 billion acquisition of Precision Castparts, Carlyle’s $8 billion purchase of Symantec’s Veritas unit, BB&T’s $1.8 billion acquisition of National Penn Bancshares, Capital One’s $9 billion acquisition of GE’s healthcare financial services operations, QVC’s $2.4 billion purchase of Zulily, Brookfield’s $6.5 billion acquisition of Asciano, Valeant’s $1 billion purchase of Sprout Pharmaceuticals, Southern Companies’ $8 billion acquisition of AGL Resources, and Schlumberger’s $12.7 billion purchase of Cameron International.
Developed market equity markets were lower in August (see page 8) as Hong Kong (-12.9%), Germany (-8.8%) and Spain (-8.5%) saw the biggest losses.  US small caps underperformed slightly, with the Russell 2000 down 6.3% and the S&P500 down 6% (see page 2).  Telecom (-3.4%), Utilities (-3.4%), and Energy (-4.2%) were the best performing sectors in August, while Health Care (-7.9%), Financials (-6.8%), and Consumer Discretionary (-6.4%) were the worst performing (see page 2).  Large cap growth (-6.1%) performed roughly in line with large cap value (-6%) in August (see page 3).  Emerging Market equities were mostly lower in August (see page 9), with the biggest losses in China (-11.7%), Brazil (-8.4%), and Malaysia (-6.9%); Russia (+1.2%), Argentina (-1.3%), and Mexico (-2.1%) were the best performing. 
In currencies, the USD Index weakened 1.6% in August (see page 10).  The weakest developed market currencies against the USD were the New Zealand Dollar (-3.8%), Australian Dollar (-2.7%), and British Pound (-1.8%), while the Japanese Yen (+2.2%), Euro (+2.1%), and Swedish Krona (+1.8%) strengthened against the USD.  The USD was stronger against emerging market currencies with the biggest losses seen in the Malaysian Ringgit (-8.5%), Brazilian Real (-5.5%), and the Turkish Lira (-4.9%) (see page 10).
US Treasury yields moved slightly higher in August (see page 12).  10 year rates closed the month at 2.21%, up from 2.18% at July month end.  Investment grade and high yield credit spreads widened in August (see page 13).
In commodities, the GSCI index was up 0.3% in August (see page 11), with losses in Agriculture (-3.5%), Industrial Metals (-1.9%), and Livestock (-0.1%) and gains in Energy (+1.6%) and Precious Metals (+2.9%).  Within individual commodities, Soybeans (-5.6%), Gasoline (-4.9%), and Sugar (-4%) led losses, while Lean Hogs (+6.8%), Heating Oil (+6.4%), and Gold (+3.4%) moved higher.
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