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

Friday, January 1, 2016

December 2015 - Monthly Market Commentary

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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