July was a generally
positive month for global risk assets. Developed
and emerging market equities were mostly higher (in many cases sharply higher),
the US Dollar index was down slightly, commodities were mostly lower, and credit spreads tightened. Early in the month, the US 10 year Treasury
yield hit a record low and Japan’s 20 year government bond yield went negative
for the first time. The Bank of England
and European Central Bank left rates unchanged, though both indicated that they
may provide additional stimulus later this year as the economic impact of
Brexit becomes more clear. The Federal
Reserve also held rates steady, but indicated that they may raise rates later
in the year. The Bank of Japan announced
additional stimulus in the form of additional ETF fund purchases, though the package
disappointed investors that were expecting a larger spending plan. The US GDP report for the second quarter showed
that the US economy grew at an annual rate of just 1.2%, while first quarter
growth was revised lower to 0.8%. The US
job report showed that 287,000 jobs were added in June, the strongest report
since October 2010; the unemployment rate rose to 4.9% and the labor force
participation rate ticked higher to 62.7% from 62.6%.
Notable
corporate transactions announced in July included the acquisition of Whitewave
by Danone for $10 billion, Avast Software’s $1.3 billion acquisition of AVG, the
$4 billion purchase of mixed martial arts organization UFC by a group of
investors led by the WME-IMG Hollywood talent agency, Tencent’s acquisition of a
controlling stake in China Music Corp., Softbank’s $32 billion purchase of ARM
Holdings, Unilever’s $1 billion purchase of Dollar Shave Club, Komatsu’s $2.9
billion acquisition of Joy Global, Verizon's $4.8 billion purchase of Yahoo’s
web assets, the $9.3 billion acquisition of NetSuite by Oracle, and NextEra’s $18.4
billion purchase of Energy Future Holdings’ stake in Oncor.
Developed
market equity markets were higher in July (see page 8), with the largest gains
in Hong Kong (+6.9%), Germany (+6.7%), and Japan (+6.4%); the worst performing
were the UK (+3.5%), Italy (+3.6%), and the S&P500 (+3.6%). US small caps outperformed large caps, with
the Russell 2000 up 6% and the Russell 1000 up 3.8% (see page 3). IT (+7.9%), Materials (+5.1%), and Healthcare
(+4.9%), were the best performing sectors in July, while Energy (-1.9%), Consumer
Staples (-0.7%), and Utilities (-0.7%) were the worst performing (see page 2). Large cap value (+2.9%) underperformed large
cap growth (+4.7%) in July (see page 3).
Emerging Market equities were mostly higher in July (see page 9), with the
biggest gains in Brazil (+11%), Thailand (+6.3%), and Taiwan (+5.5%); Argentina
(-0.3%), Malaysia (+0.1%), and Mexico (+1.3%) were the worst performing.
In
currencies, the USD Index was down 0.6% in July (see page 10). The weakest developed market currencies
against the USD were the Swedish Krona (-1.2%), Norwegian Krone (-1%), and Canadian
Dollar (-0.9%), while the Australian Dollar (+1.9%), Japanese Yen (+1.1%), and New
Zealand Dollar (+0.9%) strengthened most against the USD. Most emerging market currencies were higher
against the USD, with the biggest gains in the South African Rand (+6%), Korean
Won (+3.7%), and Taiwan Dollar (+1.3%); the Turkish Lira (-3.6%), Russian Ruble
(-3%), and Mexico Peso (-1.8%) weakened.
The US
Treasury yield curve flattened slightly in July (see page 12). 10 year rates closed the month at 1.46%, down
slightly from 1.49% at June month end. Investment grade and high yield credit
spreads tightened in July (see page 13).
In commodities,
the GSCI index was down 9.6% in July (see page 11), with gains in Precious
Metals (+3.1%) and Industrial Metals (+2%), and losses in Energy (-13.6%), Livestock
(-7.4%), and Agriculture (-6.5%). Within
individual commodities, Palladium (+18.8%), Cotton (+15.4%), and Platinum (+12.4%)
saw the biggest gains, while Lean Hogs (-17.5%), Crude Oil (-15.3%), and Heating
Oil (-13.6%) saw the biggest losses.
Gold was up 2.3% in July.
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