Note that the ECB and BOJ balance sheets now exceed that of the US Fed.
Source: Bloomberg & Morgan Stanley
Wednesday, July 5, 2017
Monday, July 3, 2017
June was a decent month for global risk assets. Global equities were mixed, with small cap and value outperformance in the US, the USD weakened, the US interest rate curve continued to flatten, commodities were mixed, and credit spreads widened slightly. Early in the month, the ECB unveiled better economic forecasts and indicated that it was unlikely to cut interest rates again in this cycle. Election results in England delivered a setback for Prime Minister May, as Conservatives were left short of a majority in Parliament, resulting in greater uncertainty as Brexit negotiations unfold. The Federal Reserve increased interest rates to a range of 1-1.25%, and detailed plans to begin reducing its balance sheet later this year. Late in the month, BOE Governor Carney indicated that interest rates in the UK may need to increase, contributing to a selloff in government bonds. The US job report showed that 138,000 non-farm jobs were added in May, the unemployment rate ticked lower to 4.3% (a 16 year low), and the labor force participation rate fell slightly to 62.7%.
Notable corporate transactions announced in June included the $4.9 billion purchase of Wirtgen Group by Deere, CIC’s $13.6 billion acquisition of Logicor from Blackstone, the $564 million purchase of Xactly by Vista Equity Partners, CD&R’s $2.5 billion acquisition of Waterworks from HD Supply Holding, the acquisition of Banco Popular by Banco Santander for one euro, the $930 million purchase of iNova Pharmaceuticals by the Carlyle Group and Pacific Equity Partners, the $605 million acquisition of SciClone Pharmaceuticals by a group led by GL Capital, Digital Realty Trust’s $5 billion acquisition of Dupont Fabros Technology, the $735 million sale of Encana’s Piceance natural gas assets to Caerus Oil and Gas, Atairos Group’s $1 billion acquisition of Bowlmor AMF, the $13.7 billion purchase of Whole Foods by Amazon, Walmart’s $310 million acquisition of Bonobos, the $5 billion purchase of Parexel by Pamplona Capital, the $1 billion acquisition of Casamigos by Diageo, Repligen’s $359 million purchase of Spectrum, Martin Marietta’s $1.6 billion purchase of Bluegrass Materials, the $1.4 billion acquisition of First Potomac Realty Trust by Government Properties, the purchase of Spectranetics by Philips for $2.2 billion, Sycamore Partners’ $6.9 billion purchase of Staples, the $1.8 billion sale of Visma by KKR to a group led by HgCapital, and Blackstone’s $650 million acquisition of Croesus Retail Trust.
Developed market equity markets were mixed in June (see page 8), with the largest gains in Japan (+2.7%), Hong Kong (+0.8%), and the S&P500 (+0.6%); the worst performing were Spain (-2.8%), France (-2.7%), and the UK (-2.5%). US small caps outperformed large caps, with the Russell 2000 up 3.5% and the Russell 1000 up 0.7% (see page 3). Financials (+6.4%), Healthcare (+4.6%), and Real Estate (+1.9%) were the best performing sectors in June, while Telecom (-2.9%), IT (-2.7%), and Utilities (-2.7%) were the worst performing (see page 2). Large cap value (+1.6%) outperformed large cap growth (-0.3%) in June (see page 3). Emerging Market equities were mostly higher in June (see page 9), with the biggest gains in Taiwan (+5.2%), Korea (+3.2%), and Indonesia (+2.7%); Argentina (-3.5%), India (-0.6%), and Russia (-0.3%) were the worst performing.
In currencies, the USD Index was down 1.3% in June (see page 10). The strongest developed market currencies against the USD were the Canadian Dollar (+4.1%), New Zealand Dollar (+3.5%), and Australian Dollar (+3.5%); the Japanese Yen was down 1.4%. Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+2.7%), Singapore Dollar (+0.5%), and Thai Baht (+0.4%) and losses in the Russian Ruble (-3.1%), Brazilian Real (-2.5%) and Korean Won (-2.3%).
The US Treasury yield curve flattened in June (see page 12). 10 year rates closed the month at 2.31%, up from 2.20% at May month end. Investment grade and high yield credit spreads widened in June (see page 13).
In commodities, the GSCI index was down 1.9% in June (see page 11), with gains in Agriculture (+3.3%) and Industrial Metals (+3.2%) and losses in Energy (-4.3%), Precious Metals (-2.8%), and Livestock (-2%). Within individual commodities, Wheat (+18.8%), Copper (+4.5%), and Soybeans (+3.6%) saw the biggest gains, while Sugar (-8.4%), Cotton (-7.1%), and Cocoa (-6.4%) saw the biggest losses. Gold was down 2.5% for the month.
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