December was
a mixed month for global risk assets. Developed
and emerging market equities were mostly lower, the US Dollar strengthened
against emerging market currencies, but weakened against the Euro and Yen,
commodities were mixed, credit spreads widened, and US interest rates
increased. The big macroeconomic
headline for the month was the Federal Reserve’s first interest rate increase
in nine years, ending seven years with a target funds rate of zero
percent. In Europe, the ECB disappointed
markets with a cut in the deposit rate and a six month extension of the
existing quantitative easing program. The
US job report showed 211,000 jobs were added in November, while the
unemployment rate was unchanged at 5.0% and the labor force participation rate ticked
slightly higher to 62.5%.
Notable
corporate transactions announced in December included the $13.9 billion acquisition
of Keurig Green Mountain by an investor group led by JAB Holding, Alibaba’s purchase
of the South China Morning Post for $266 million, the $130 billion merger and
subsequent three way breakup of DuPont and Dow Chemical, Newell Rubbermaid’s $15
billion acquisition of Jarden, Cerberus Capital’s $605 million deal to buy 80%
of Avon Products’ North American business and a 17% stake in the company, the
$1 billion purchase of Pep Boys by Icahn Enterprises, and Singha Asia’s $1.1
billion deal to buy 25% of Masan Consumer Holdings and 33.3% of Masan Brewery.
Developed
market equity markets were mostly lower in December (see page 8) as Australia (+2.6%)
and Hong Kong (+0.8%) gained, while Spain (-8.3%), Italy (-6.1%), and France (-6%)
saw the biggest losses. US small caps underperformed,
with the Russell 2000 down 5% and the S&P500 down 1.6% (see page 2). Consumer Staples (+2.9%), Utilities (+2.2%), and
Healthcare (+1.8%) were the best performing sectors in December, while Energy (-9.9%),
Materials (-4.2%), and Consumer Discretionary (-2.8%) were the worst performing
(see page 2). Large cap growth (-1.5%) outperformed
large cap value (-2.2%) in December (see page 3). Emerging Market equities were mostly lower in
December (see page 9), with the biggest gains in Indonesia (+4.7%), India (+1.7%),
and Malaysia (+1.4%); Thailand (-7.3%), Brazil (-4.2%), and Argentina (-3.8%)
were the worst performing.
In
currencies, the USD Index weakened 1.5% in December (see page 10). The weakest developed market currencies
against the USD were the Canadian Dollar (-3.4%), British Pound (-2.1%), and Norwegian
Krone (-1.7%), while the New Zealand Dollar (+3.8%), Swedish Krona (+3.3%), and
Euro (+2.8%) strengthened the most against the USD. The USD was stronger against most emerging
market currencies with the biggest gains seen against the Russian Ruble (-9%), South
African Rand (-6.6%), and Mexican Peso (-3.7%); the Indian Rupee (+0.5%)
strengthened against the USD (see page 10).
US Treasury yields
rose in December (see page 12) across the curve. 10 year rates closed the month at 2.27%, up from
2.21% at November month end. Investment grade and high yield credit
spreads widened in December (see page 13).
In commodities,
the GSCI index was down 8.6% in December (see page 11), with losses in Energy (-15.3%),
Agriculture (-1.2%), and Precious Metals (-0.6%); gains were seen in Livestock
(+3.7%) and Industrial Metals (+3.3%).
Within individual commodities, Platinum (+7.2%), Coffee (+5.9%), and
Lean Hogs (+5.3%) saw the biggest gains, while Heating Oil (-18.9%), Brent
Crude (-18%), and Crude Oil (-14.7%) saw the biggest losses; Gold was down 0.5%.
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