February was a strong month for global risk assets. Developed and emerging market equities were mostly higher, the USD strengthened, the US interest rate curve flattened, commodities moved higher, and credit spreads tightened. On the 1st of the month, the Federal Reserve left interest rates unchanged and indicated that it remained on track to gradually raise short term interest rates in 2017, while noting a recent increase in consumer confidence. Later in the month at her Congressional testimony, Chair Yellen signaled that a rate increase in March was a possibility. In the UK, the Bank of England also left interest rates unchanged. The US job report showed that 227,000 jobs were added in January, the unemployment rate ticked higher to 4.8%, and the labor force participation rate ticked up to 62.9%.
Notable corporate transactions announced in February included the $16.6 billion purchase of Mead Johnson Nutrition by Reckitt Benckiser, the $4.3 billion acquisition of Aon’s benefits outsourcing business to Blackstone, Allergan’s $2.5 billion acquisition of Zeltiq Aesthetics, Softbank’s $3.3 billion purchase of Fortress Investment Group, Restaurant Brands’ $1.6 billion acquisition of Popeyes Louisiana Kitchen, the $310 million purchase of Turn by Amobee, the ad tech division of Singtel, Tronox’s $1.7 billion purchase of Cristal, and Saudi Aramco’s $7 billion purchase of a stake in Petronas’ RAPID refinery project.
Developed market equity markets were higher in February (see page 8), with the largest gains in the S&P500 (+3.9%), the UK (+3.1%), and Australia (+2.4%); the worst performing were Canada (flat), Japan (+0.5%), and Italy (+1.4%). US small caps underperformed large caps, with the Russell 2000 up 1.9% and the Russell 1000 up 3.9% (see page 3). Health Care (+6.4%), Utilities (+5.3%), and Financials (+5.2%) were the best performing sectors in February, while Energy (-2.2%), Telecom (-0.4), and Materials (+0.7%) were the worst performing (see page 2). Large cap growth (+4.2%) outperformed large cap value (+3.6%) in February (see page 3). Emerging Market equities were mostly higher in February (see page 9), with the biggest gains in India (+4.1%), China (+3.6%), and Brazil (+3.2%); Russia (-8.5%), Mexico (-0.4%), and Thailand (-0.2%) were the worst performing.
In currencies, the USD Index was up 1.6% in February (see page 10). The strongest developed market currencies against the USD were the Australian Dollar (+0.9%) and Japanese Yen (flat); the weakest were the Swedish Krona (-3.3%), Euro (-2.1%), and Canadian Dollar (-2%). Emerging market currencies were mostly higher against the USD, with the biggest gains in the Mexican Peso (+3.6%), Turkish Lira (+3.5%), and Russian Ruble (+3.1%) and losses in the Chinese Yuan (-0.4%) and Malaysian Ringgit (-0.2%).
The US Treasury yield curve flattened in February (see page 12). 10 year rates closed the month at 2.39%, down from 2.45% at January month end. Investment grade and high yield credit spreads tightened in February (see page 13).
In commodities, the GSCI index was up 0.2% in February (see page 11), with gains in Precious Metals (+3.7%), Industrial Metals (+1.7%), and Livestock (+1.3%) and losses in Energy (-0.3%) and Agriculture (-0.2%). Within individual commodities, Aluminum (+5.8%), Silver (+4.9%), and Gold (+3.6%) saw the biggest gains, while Natural Gas (-13.1%), Cocoa (-10.2%), and Coffee (-6.2%) saw the biggest losses.
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