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Friday, April 1, 2016

March 2016 - Monthly Market Commentary

March was a very strong month for global risk assets.  Global equities rallied sharply, the US Dollar weakened, commodities moved higher, credit spreads tightened, and the US interest rate curve steepened.  At its March meeting, the Federal Reserve left interest rates unchanged and reduced the expectation of its 2016 rate increases from four to two.  Federal Reserve Chair Yellen further stoked the risk rally near month end with a speech at the Economic Club of New York where she indicated that it is appropriate for the central bank to proceed cautiously in adjusting policy.  Earlier in the month, the ECB also boosted global risk appetite by cutting rates and expanding its asset purchase program.  China, meanwhile, lowered its 2016 economic growth target to a range of 6.5% - 7%.  The US job report showed 242,000 jobs were added in February, while the unemployment rate remained at 4.9% and the labor force participation rate moved higher to 62.9%. 
Notable corporate transactions announced in March included the $260 million acquisition of CliQr and the $380 million acquisition of Leaba Semiconductor by Cisco, China Resources Beer’s $1.6 billion purchase of SABMiller’s 49% interest in its Chinese beer business, Samsonite’s $1.8 billion acquisition of Tumi, AMC Entertainment’s $1.1 billion purchase of Carmike Cinemas, the $3.05 billion acquisition of Dell’s Perot Systems business by NTT Data, Intel’s $175 million acquisition of Replay Technologies, GM’s acquisition of self-driving software firm Cruise Automation for an undisclosed amount, the $1.36 billion take private transaction of Fresh Market by Apollo Global, Davide Campari-Milano’s $759 million purchase of Societe des Produits Marnier Lapostolle, the $30 billion merger of the London Stock Exchange and Deutsche Borse, the $6.2 billion sale of Toshiba’s medical and consumer electronics business to Canon, Coherent’s $942 million acquisition of Rofin-Sinar, TransCanada’s $10.2 billion purchase of Columbia Pipeline Group, IBM’s purchase of Optevia and the Bluewolf Group for undisclosed amounts, Sherwin Williams’ $9 billion acquisition of Valspar, the $13 billion merger of IHS and Markit, the $13.6 billion acquisition of Starwood Hotels by Marriott, Foxconn’s $3.5 billion purchase of Sharp, and State Street’s $485 million purchase of GE’s Asset Management business.
Developed market equity markets were sharply higher in March (see page 8) led by Hong Kong (+9.5%), the S&P500 (+6.7%), and Canada (+5%).  US small caps outperformed large caps, with the Russell 2000 up 8% (see page 2).  Energy (+9.3%), IT (+9.2%), and Utilities (+8%), were the best performing sectors in March, while Healthcare (+2.8%), Consumer Staples (+4.8%), and Telecom (+6.4%) were the worst performing (see page 2).  Large cap value (+7.2%) outperformed large cap growth (+6.7%) in March (see page 3).  Emerging Market equities were also sharply higher in March (see page 9), with the biggest gains in Brazil (+16.2%), China (+11.7%), and India (+9.4%); Argentina (-3.5%), Indonesia (+2.3%), and Russia (+4.4%) were the worst performing. 
In currencies, the USD Index weakened 3.7% in March (see page 10).  The strongest developed market currencies against the USD were the Australian Dollar (+7.2%), Swedish Krona (+5.5%), and Norwegian Krone (+5.1%).  The USD also weakened against emerging market currencies with the biggest gains seen by the Brazilian Real (+11.9%), Russian Ruble (+11.3%), and Malaysian Ringgit (+8.4%) (see page 10).
The US Treasury yield curve steepened in March (see page 12) as short term rates fell and long term rates were little changed.  10 year rates closed the month at 1.77%, up slightly from 1.74% at February month end.  Investment grade and high yield credit spreads tightened in March (see page 13).
In commodities, the GSCI index was up 4.9% in March (see page 11), with gains in Energy (+8.3%), Agriculture (+3.4%), Precious Metals (+0.4%), and Industrial Metals (+0.1%) and losses in Livestock (-1.4%).  Within individual commodities, Palladium (+13.8%), Coffee (+10.8%), and Natural Gas (+8.7%) saw the biggest gains, while Aluminum (-3.8%), Feeder Cattle (-2.1%), and Live Cattle (-1.9%) saw the biggest losses.
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