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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