January was a fairly strong month for global risk assets. Developed and emerging market equities were mostly higher, the USD weakened, US interest rates were little changed, and commodities were mostly higher with the exception of the energy complex. US GDP expanded at an annualized rate of 1.9% in the fourth quarter, roughly in line with the average rate since the end of the recession in 2009. The ECB left both rates and its stimulus program unchanged. In the UK, Brexit uncertainty continued as the British Supreme Court ruled that Parliament must vote on starting the Brexit process. The US job report showed that 156,000 jobs were added in December, the unemployment rate ticked higher to 4.7%, the labor force participation rate ticked up to 62.7%, and wages increased by an annualized rate of 2.9%, the highest since 2009.
Notable corporate transactions announced in January included the $2 billion sale of 80% of McDonald’s China business to Citic Capital and the Carlyle Group, the $2.3 billion purchase of Surgical Care Affiliates by UnitedHealth, Takeda Pharmaceutical’s $4.7 billion acquisition of Ariad Pharmaceuticals, Mars Inc’s $7.7 billion purchase of VCA, Valeant’s $1.3 billion sale of three skin care brands to L’Oreal and $820 million sale of its Dendreon cancer business to Sanpower, the $49 billion merger of Luxottica and Essilor International, Noble Energy’s $2.7 billion purchase of Clayton Williams Energy, BAT’s $49 billion deal to buy the remainder of Reynolds American, Safran’s $9 billion purchase of Zodiac Aerospace, the $3.7 billion acquisition of AppDynamics by Cisco., the $30 billion purchase of Actelion by Johnson & Johnson, the $880 million acquisition of MoneyGram by Ant Financial, the $980 million sale of Citigroup’s mortgage servicing business to New Residential, and Royal Dutch Shell’s $3.8 billion sale of much of its North Sea assets to Chrysaor and $900 million sale of its interest in a Thai gas field to Kuwait Foreign Petroleum Exploration Co.
Developed market equity markets were mostly higher in January (see page 8), with the largest gains in Hong Kong (+7.8%), the S&P500 (+1.9%), and Canada (+0.8%); the worst performing were Italy (-5.1%), France (-1.8%), and Australia (-0.5%). US small caps underperformed large caps, with the Russell 2000 up 0.4% and the Russell 1000 up 2% (see page 3). Materials (+4.6%), IT (+4.4%), and Consumer Discretionary (+4.2%) were the best performing sectors in January, while Energy (-3.6%), Telecom (-2.5%), and Real Estate (-0.1%) were the worst performing (see page 2). Large cap growth (+3.4%) outperformed large cap value (+0.7%) in January (see page 3). Emerging Market equities were mostly higher in January (see page 9), with the biggest gains in Argentina (+18.4%), Brazil (+7%), and China (+6.9%); Russia (-1.5%), Indonesia (-0.8%), and Malaysia (+1.8%) were the worst performing.
In currencies, the USD Index was down 2.6% in January (see page 10). The strongest developed market currencies against the USD were the New Zealand Dollar (+5.5%), Australian Dollar (+5.2%), and Norwegian Krone (+4.8%). Emerging market currencies were mostly higher against the USD, with gains in the Korean Won (+4.9%), Taiwan Dollar (+3.9%), and Brazilian Real (+3.3%) and losses in the Turkish Lira (-6.7%) and Mexican Peso (-0.5%).
The US Treasury yield curve was little changed in January (see page 12). 10 year rates closed the month at 2.45%, unchanged from December month end. Investment grade and high yield credit spreads were also little changed in January (see page 13).
In commodities, the GSCI index was down 1.4% in January (see page 11), with gains in Industrial Metals (+8.4%), Precious Metals (+5.5%), and Agriculture (+3.5%) and losses in Energy (-4.7%) and Livestock (-1.1%). Within individual commodities, Palladium (+10.4%), Platinum (+10.1%), and Silver (+9.8%) saw the biggest gains, while Natural Gas (-16.1%), Gasoline (-8.7%), and Heating Oil (-6.2%) saw the biggest losses. Gold was up 5% in January.
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