August was another generally positive month for global risk assets. Developed and emerging market equities were mostly higher, with US stock indexes hitting new record highs, the US Dollar index was up slightly, commodities were mixed, and credit spreads tightened slightly. The July Fed minutes indicated that central bank officials remain split on determining when to increase interest rates, though at their Jackson Hole gathering, Chairwoman Yellen indicated that an increase was likely in the coming months. In the UK, in addition to announcing several new asset purchase and funding programs, the Bank of England cut the benchmark interest rate to the lowest level in its 322 year history in response to the June 23 Brexit vote. In Australia, the central bank reacted to low inflation and a weak jobs market by cutting the cash rate to a new record low. The US job report showed that 255,000 jobs were added in July; the unemployment rate remained at 4.9% and the labor force participation rate ticked higher to 62.8% from 62.7%.
Notable corporate transactions announced in August included the acquisition of Uber’s China operations by Didi Chuxing along with a $1 billion investment by Didi in Uber, Carlyle’s acquisition of 70% of China focused outsourcing company VXI Global Solutions with a valuation of $1 billion, Steinhoff International’s $2.4 billion takeover of Mattress Firm Holding, Walmart’s $3.3 billion acquisition of Jet.com, Intel’s purchase of Nervana Systems for $350 million, Disney’s acquisition of a one-third stake in BAMTech for $1 billion, Apple’s purchase of Turi for $200 million, Samsung’s acquisition of Dacor, HP Enterprise’s acquisition of Silicon Graphics for $275 million, the sale of AIG’s mortgage insurance business to Arch Capital for $3.4 billion, Pfizer’s acquisition of Medivation for $14 billion, and Pfizer’s purchase of part of AstraZeneca’s antibiotics business for $1.6 billion.
Developed market equity markets were mostly higher in August (see page 8), with the largest gains in Germany (+2.4%), Spain (+1.7%), and the UK (+1.5%); the worst performing were Australia (-1.5%), France (-0.1%), and the S&P500 (+0.1%). US small caps outperformed large caps, with the Russell 2000 up 1.8% and the Russell 1000 up 0.1% (see page 3). Financials (+3.8%), IT (+2.1%), and Energy (+1.2%), were the best performing sectors in August, while Telecom (-5.7%), Utilities (-5.6%), and Healthcare (-3.3%) were the worst performing (see page 2). Large cap value (+0.8%) outperformed large cap growth (-0.5%) in August (see page 3). Emerging Market equities were mostly higher in August (see page 9), with the biggest gains in China (+7.3%), Thailand (+3%), and Indonesia (+2.8%); the Philippines (-2.8%), Argentina (-2.2%), and Brazil (+0.9%) were the worst performing.
In currencies, the USD Index was up 0.5% in August (see page 10). The weakest developed market currencies against the USD were the Swiss Franc (-1.5%), Japanese Yen (-1.3%), and Australian Dollar (-1%), while the Norwegian Krone (+1.4%) and New Zealand Dollar (+0.7%) strengthened most against the USD. Emerging market currencies were mixed against the USD, with the biggest gains in the Turkish Lira (+0.9%), Russian Ruble (+0.9%), and Brazilian Real (+0.7%); the South African Rand (-5.7%), Malaysian Ringgit (-1.7%), and Indonesian Rupiah (-1.6%) weakened.
The US Treasury yield curve shifted higher in August (see page 12). 10 year rates closed the month at 1.58%, up from 1.46% at July month end. Investment grade and high yield credit spreads tightened slightly in August (see page 13).
In commodities, the GSCI index was up 1.8% in August (see page 11), with gains in Energy (+6.1%) and losses in Agriculture (-5.7%), Precious Metals (-4%), Industrial Metals (-3.2%), and Livestock (-0.4%). Within individual commodities, Gasoline (+7.4%), Heating Oil (+7.2%), and Brent Crude (+6.9%) saw the biggest gains, while Cotton (-11.4%), Wheat (-9.3%), and Silver (-8.6%) saw the biggest losses. Gold was down 3.4% in August.
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