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Friday, July 1, 2016

June 2016 - Monthly Market Commentary

June was a mixed month for global risk assets.  Developed market equities were mostly lower, emerging market equities were mostly higher, the US dollar index was up slightly, though this masked very large moves in individual currency pairs, commodities were mostly higher, credit spreads widened, though recovered most of their intra month losses, and the US yield curve flattened.  The biggest macro news in June was the Brexit vote in the United Kingdom that shocked most pundits and global risk markets; while the long term implications of the vote remain unclear, analysts believe that it is likely to pull at least the UK into a near term recession.  In the US, the Federal Reserve kept interest rates unchanged and lowered expectations of future rate hikes.  Government bond yields continued to fall around the world in June, and the German 10 year bund fell below zero for the first time ever.  The US job report showed that just 38,000 jobs were added in May, the weakest report since September 2010; the unemployment rate fell to 4.7% and the labor force participation rate fell from 62.8% to 62.6%. 
Notable corporate transactions announced in June included the acquisition of EZSource by IBM, National Oilwell Varco’s acquisition of Trican Well Services’s completion tools business, the $4.7 billion purchase of Blue Coat Systems by Symantec, Microsoft’s $26.2 billion acquisition of LinkedIn, Broadridge Financial’s $410 million purchase of DST’s North American customer communications business, Tencent’s $8.6 billion purchase of a majority stake in Supercell, Samsung’s acquisition of Joyent, Kion Group's $2.1 billion purchase of Dematic, the $293 million acquisition of CloudLock by Cisco, the $290 million purchase of Cantab Capital by GAM, and Lions Gate’s $4.4 billion acquisition of Starz.
Developed market equity markets were mostly lower in June (see page 8), with the largest losses in Japan (-9.8%), Spain (-9.7%), and Italy (-9.6%); the UK (+5%), Hong Kong (+0.8%), and the S&P500 (+0.2%) moved higher.  US small caps slightly underperformed large caps, with the Russell 2000 down 0.1% and the Russell 1000 up 0.2% (see page 3).  Telecom (+9.3%), Utilities (+7.8%), and Consumer Staples (+5.2%), were the best performing sectors in June, while Financials (-3.2%), IT (-2.8%), and Consumer Discretionary (-1.2%) were the worst performing (see page 2).  Large cap value (+0.9%) outperformed large cap growth (-0.4%) in June (see page 3).  Emerging Market equities were mostly higher in June (see page 9), with the biggest gains in Brazil (+6.3%), Indonesia (+5.9%), and the Philippines (+5.3%); Russia (-0.4%), Thailand (+0.3%), and Korea (+0.6%) were the worst performing. 
In currencies, the USD Index gained 0.3% in June (see page 10).  The weakest developed market currencies against the USD were the British Pound (-8.1%), Swedish Krona (-1.5%), and Euro (-0.2%), while the Japanese Yen (+7.3%), New Zealand Dollar (+5.5%), and Australian Dollar (3%) strengthened.  Most emerging market currencies were higher against the USD, with the biggest gains in the Brazilian Real (+12.4%), South African Rand (+6.7%), and Russian Ruble (+4.2%); the Chinese Yuan (-0.9%) and Indian Rupee (-0.4%) weakened.
The US Treasury yield curve flattened in June (see page 12).  10 year rates closed the month at 1.49%, down sharply from 1.83% at May month end.  Investment grade and high yield credit spreads widened in June, though recovered most of their intra month losses (see page 13).
In commodities, the GSCI index was up 0.1% in June (see page 11), with gains in Precious Metals (+9.3%) and Industrial Metals (+5.7%), losses in Energy (-1.2%) and Livestock (-1.2%), and Agriculture flat.  Within individual commodities, Natural Gas (+24.2%), Coffee (+18.2%), and Silver (+16.1%) saw the biggest gains, while Corn (-10.5%), Gasoline (-7.5%), and Wheat (-6.1%) saw the biggest losses.  Gold was up 8.5% in June.

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