October was a strong month of recovery for global risk assets. Global equities rallied sharply, credit spreads tightened, emerging market currencies strengthened versus the US Dollar, and volatility fell sharply across asset classes. Investors regained confidence in the global economic outlook as China’s central bank lowered benchmark interest rates and reduced bank reserve requirement ratios, and the ECB indicated that it could take additional steps before year end to bolster growth. The Federal Reserve surprised markets by stating that it may raise interest rates at their December meeting. Earlier in the month, the US job report showed 142,000 jobs were added in September, while the unemployment rate held steady at 5.1% and the labor force participation rate declined to 62.4%, a four decade low.
Notable corporate transactions announced in October included the $15 billion merger of China’s Meituan and Dianping, Blackstone’s $4.9 billion purchase of BioMed Realty Trust, Dell’s $67 billion acquisition of EMC, AB InBev’s $106 billion purchase of SABMiller., Wells Fargo’s acquisition of GE Capital’s Commercial Distribution Finance and Vendor Finance businesses with assets of $32 billion, AmSurg’s $5 billion purchase of Team Health Holdings, Western Digital’s $19 billion purchase of SanDisk, Starwood Capital’s $5.4 billion acquisition of 23,000 apartments from Equity Residential, Bridgestone’s $835 million acquisition of Pep Boys, Duke Energy’s $4.9 billion purchase of Piedmont Natural Gas, ICE’s $5.2 billion acquisition of IDC from Silver Lake & Warburg Pincus, Walgreens’ acquisition of Rite Aid for $9.4 billion, Snyder’s-Lance $1.27 billion purchase of Diamond Foods, IBM’s acquisition of The Weather Company, and KeyCorp’s purchase of First Niagara Financial for $4.1 billion.
Developed market equity markets were higher in October (see page 8) as Germany (+11.8%), Japan (+10.9%), and France (+9.5%) saw the biggest gains. US small caps underperformed, with the Russell 2000 up 5.6% and the S&P500 up 8.4% (see page 2). Materials (+13.5%), Energy (+11.4%), and IT (+10.8%) were the best performing sectors in October, while Utilities (+1.1%), Consumer Staples (+5.8%), and Financials (+6.2%) were the worst performing (see page 2). Large cap growth (+8.6%) outperformed large cap value (+7.5%) in October (see page 3). Emerging Market equities were higher in October (see page 9), with the biggest gains in Argentina (+44.9%), China (+9.1%), and Indonesia (+8.2%); India (+1.1%), Brazil (+1.5%), and the Philippines (+2.7%) were the worst performing.
In currencies, the USD Index strengthened 0.6% in October (see page 10). The weakest developed market currencies against the USD were the Swedish Krona (-2%), Euro (-1.5%), and Swiss Franc (-1.5%), while the New Zealand Dollar (+5.9%), British Pound (+2%), and Canadian Dollar (+1.8%) strengthened against the USD. The USD was weaker against most emerging market currencies with the biggest gains seen in the Indonesian Rupiah (+6.7%), Korean Won (+3.9%), and Turkish Lira (+3.8%) (see page 10).
US Treasury yields rose in October (see page 12) across the curve. 10 year rates closed the month at 2.14%, up from 2.06% at September month end. Investment grade and high yield credit spreads tightened in October (see page 13).
In commodities, the GSCI index was up 0.2% in October (see page 11), with losses in Industrial Metals (-2.8%), and Energy (-0.3%) and gains in Agriculture (+1.5%), Precious Metals (+2.9%), and Livestock (+3%). Within individual commodities, Sugar (+12.7%), Feeder Cattle (+9.3%), and Platinum (+8.8%) led gains, while Natural Gas (-15.3%), Lean Hogs (-11.3%), and Aluminum (-7%) moved lower; Gold was up 2.4%.
Contact CurAlea Associates for a Daily Market Review.