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

Tuesday, March 1, 2016

February 2016 - Monthly Market Commentary

February was a mixed month for global risk assets.  Developed market equities were mostly lower, emerging market equities were mostly higher, the US Dollar was weaker against most developed market currencies and was mixed against emerging market currencies, energy commodities were sharply lower, and the US interest rate curve flattened.  At her February congressional testimony, Chairwoman Yellen suggested that the balance of risks facing the US economy had deteriorated, leading most observers to conclude that a March interest rate hike was off the table.  In Europe, headline inflation fell to -0.2% in February, raising expectations for another round of policy easing from the ECB in March.  The US job report showed 151,000 jobs were added in January, while the unemployment rate fell to 4.9% and the labor force participation rate ticked slightly higher to 62.7%. 
Notable corporate transactions announced in February included the $4.4 billion acquisition of Questar by Dominion Resources, IBM’s purchase of Aperto and Resilient Systems for undisclosed amounts and Truven Health Analytics for $2.6 billion, Abbott Lab’s $5.8 billion acquisition of Alere, China National Chemical’s $43 billion purchase of Syngenta, the $1.4 billion acquisition of Jasper Technologies by Cisco, Groupe Casino’s sale of a 58.6% stake in Thai hypermarket operator Big C Supercenter to the TCC Group for 3.1 billion euros, the $1.1 billion take private transaction of Apollo Education by an investor group including the Vistria Group and Apollo Global, Mylan’s $7.2 billion purchase of Meda, ADT’s $6.9 billion acquisition by Apollo Global, Tianjin Tianhai Investment’s $6 billion purchase of Ingram Micro, Verizon’s $1.8 billion acquisition of XO Communications’ fiber-optic network business, and Sysco’s $3.1 billion purchase of the Brakes Group.
Developed market equity markets were mostly lower in February (see page 8) as Japan (-9.3%), Italy (-5.6%), and Spain (-4%) had the biggest losses, while the UK (+0.9%) gained.  US small caps performed roughly in line with large caps, with the Russell 2000 flat on the month and the S&P500 down 0.1% (see page 2).  Materials (+7.6%), Industrials (+4%), and Telecom (+2.7%), were the best performing sectors in February, while Financials (-2.9%), Energy (-1.9%), and IT (-1.2%) were the worst performing (see page 2).  Large cap growth and large cap value were both flat in February (see page 3).  Emerging Market equities were mostly higher in February (see page 9), with the biggest gains in Argentina (+8.3%), Brazil (+5.2%), Thailand (+4.2%); India (-6.7%), China (-2.6%), and Malaysia (-0.8%) were the worst performing. 
In currencies, the USD Index weakened 1.4% in February (see page 10).  The strongest developed market currencies against the USD were the Japanese Yen (+7.5%), Canadian Dollar (+3.2%), and Swiss Franc (+2.5%), while the British Pound (-2.3%) and Norwegian Krone (-0.2%) weakened against the USD.  The USD was mixed against emerging market currencies with the biggest gains seen against the Korean Won (-2.5%), Malaysian Ringgit (-1.6%), and Indian Rupee (-0.5%); the Indonesian Rupiah (+2.3%), Russian Ruble (+1.5%), and Singapore Dollar (+1.2%) strengthened against the USD (see page 10).
The US Treasury yield curve flattened in February (see page 12) as short term rates rose and long term rates fell.  10 year rates closed the month at 1.74%, down from 1.94% at January month end.  By month end, investment grade and high yield credit spreads recovered most of their mid-month widening (see page 13).
In commodities, the GSCI index was down 2% in February (see page 11), with losses in Energy (-4.5%) and Agriculture (-3.3%); gains were seen in Livestock (+1.2%), Industrial Metals (+3.4%), and Precious Metals (+10%).  Within individual commodities, Gold (+10.6%), Sugar (+9.9%), and Platinum (+6.9%) saw the biggest gains, while Natural Gas (-27.7%), Cotton (-8.4%), and Crude Oil (-6.4%) saw the biggest losses.
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