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Monday, October 3, 2016

September 2016 - Monthly Market Commentary

September was a decent month for global risk assets.  Developed and emerging market equities were mostly higher, as were commodities, the USD weakened slightly, and credit spreads were little changed.  The Federal Reserve again made no change to interest rates, but indicated that an increase is still likely before year end.  In Europe, the ECB also made no change to its stimulus program.  In England, the BOE also left rates unchanged, and also indicated that another cut is likely before the end of 2016.  In Japan, the BOJ for the first time introduced a target of zero for 10 year interest rates and indicated that it would adjust its bond purchases to achieve that target.  The US job report showed that 151,000 jobs were added in August; the unemployment rate remained at 4.9% and the labor force participation rate remained at 62.8%. 
Notable corporate transactions announced in September included the $460 million sale of a stake in Yum Brands’ China business to a group that includes Primavera Capital and Ant Financial Services, Intel’s acquisition of computer vision chip maker Movidius, Enbridge’s $28 billion purchase of Spectra Energy, The $4.4 billion sale of Formula One to Liberty Media, the $8.8 billion spin off and merger of HP Enterprises’ software business with Micro Focus International, the $4.2 billion sale of a 51% stake in Intel’s computer security business to TPG, the $20.6 billion merger of Agrium and Potash, HP’s $1 billion purchase of Samsung’s printer business, Bayer’s $66 billion acquisition of Monsanto, Allergan’s $639 million purchase of Vitae Pharmaceuticals and $1.7 billion purchase of Tobira Therapeutics, J&J’s acquisition of Abbott Lab’s eye surgery equipment business, Apple’s acquisition of Tuplejump, and CBOE’s $3.2 billion purchase of Bats Global Markets.
Developed market equity markets were mostly higher in September (see page 8), with the largest gains in Hong Kong (+3.6%), Australia (+2.5%), and Japan (+1.6%); the worst performing were Italy (-3%), the S&P 500 (0%), and Germany (+0.4%).  US small caps outperformed large caps, with the Russell 2000 up 1.1% and the Russell 1000 up 0.1% (see page 3).  Energy (+3.1%), IT (+2.4%), and Utilities (+0.4%), were the best performing sectors in September, while Financials (-2.7%), Consumer Staples (-1.5%), and Materials (-1.3%) were the worst performing (see page 2).  Large cap growth (+0.4%) outperformed large cap value (-0.2%) in September (see page 3).  Emerging Market equities were mixed in September (see page 9), with the biggest gains in Argentina (+5.3%), Russia (+3.9%), and Taiwan (+2.9%); the Philippines (-5.6%), Thailand (-3.5%), and Mexico (-3.3%) were the worst performing. 
In currencies, the USD Index was down 0.6% in September (see page 10).  The weakest developed market currencies against the USD were the British Pound (-1.3%), while the Norwegian Krone (+4.4%), Japanese Yen (+2.1%), and Australian Dollar (+2%) strengthened most against the USD.  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the South African Rand (+7.4%), Russian Ruble (+4%), and Indonesian Rupiah (+1.9%); the Mexican Peso (-3.1%), Turkish Lira (-1.4%), and Brazilian Real (-1%) weakened.
The US Treasury yield curve was little changed in September (see page 12).  10 year rates closed the month at 1.60%, up from 1.58% at August month end.  Investment grade and high yield credit spreads were little changed in September (see page 13).
In commodities, the GSCI index was up 4.1% in September (see page 11), with gains in Energy (+6.1%), Industrial Metals (+5.1%), Agriculture (5%), and Precious Metals (+0.7%), and losses in Livestock (-12.1%).  Within individual commodities, Gasoline (+11.4%), Sugar (+11.3%), and Palladium (+7.7%) saw the biggest gains, while Lean Hogs (-22.1%), Feeder Cattle (-12%), and Live Cattle (-6.9%) saw the biggest losses.  Gold was up 0.5% in September.

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