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Tuesday, August 1, 2017

July 2017 - Monthly Market Commentary

July was a strong month for global risk assets.  Global equities moved higher, with large cap and growth outperformance in the US, the USD weakened, the oil complex moved sharply higher, and credit spreads tightened.  Early in the month, minutes from the June Fed meeting showed that Fed officials were readying plans to start shrinking the central bank’s balance sheet “within a couple of months”.  Later in the month, at their Open Market Committee meeting, the Fed left rates unchanged and said the balance sheet reduction could begin “relatively soon”.  At its own meeting, the ECB left its monetary policy unchanged, and indicated that it would further discuss its quantitative easing program in the fall.  The BOJ, meanwhile, pushed back (for the sixth time) by a year the date when inflation in Japan should hit 2%.  Late in the month, the Commerce Department reported that US GDP grew at an annualized rate of 2.6% in the second quarter.  The US job report showed that 222,000 non-farm jobs were added in June, the unemployment rate ticked higher to 4.4%, and the labor force participation rate rose slightly to 62.8%. 
Notable corporate transactions announced in July included the $875 million sale of Stonyfield by Danone to Lactalis, Monomoy Capital’s $338 million acquisition of West Marine, the $3 billion purchase of Monogram Residential Trust by Greystar Real Estate Partners, the $10 billion merger of Worldpay and Vantiv, EQT’s $875 million acquisition of Global Gateway South, the acquisition of Ambry Genetics by Konica Minolta for $1 billion, the $605 million purchase of Lloyd’s of London insurer Novae by Axis Capital, the $1.24 billion acquisition of Bankrate by Red Ventures, the $2.1 billion merger of QVC and HSN, Campbell Soup’s $700 million acquisition of Pacific Foods, the $1,1 billion acquisition of ClubCorp by Apollo Global Management, the $1.4 billion sale of Halcon Resources’ Williston Basin assets to Bruin E&P Partners, the $1.1 billion acquisition of Dow Chemical’s corn seed business in Brazil by a unit of CITIC, the $1.25 billion purchase of GCA Services by ABM, the $1.3 billion acquisition of Constantia Flexibles by Multi-Color, the Washington Companies’ $1.2 billion purchase of Dominion Diamond, Church & Dwight’s $1 billion purchase of Water Pik, the $7.1 billion acquisition of Lightower by Crown Castle, the purchase of Reckitt Benckiser’s food division by McCormick for $4.2 billion, Hydro One’s $5.3 billion purchase of Avista, the $2.8 billion acquisition of WebMD by KKR, the $6 billion purchase of Nature’s Bounty by KKR from Carlyle Group, Michael Kors’ $1.2 billion acquisition of Jimmy Choo, Laboratory Corp’s $1.2 billion purchase of Chiltern, and Discovery’s $14.6 billion acquisition of Scripps Networks.
Developed market equities were mostly higher in July (see page 8), with the largest gains in Italy (+3.8%), Hong Kong (+3.8%), and the S&P500 (+2%); the worst performing were Germany (-1.5%), France (-0.5%), and Canada (+0.1%).  US small caps underperformed large caps, with the Russell 2000 up 0.7% and the Russell 1000 up 2% (see page 3).  Telecom (+6.4%), IT (+4.3%), and Energy (+2.5%) were the best performing sectors in July, while Industrials (+0.1%), Consumer Staples (+0.6%), and Health Care (+0.8%) were the worst performing (see page 2).  Large cap value (+1.3%) underperformed large cap growth (+2.7%) in July (see page 3).  Emerging market equities were mostly higher in July (see page 9), with the biggest gains in China (+8.9%), India (+6.9%), and Russia (+5.4%); Argentina (-6.8%), Malaysia (-0.1%), and Indonesia (+0.2%) were the worst performing. 
In currencies, the USD Index was down 2.9% in July (see page 10).  The strongest developed market currencies against the USD were the Norwegian Krone (+6.2%), Swedish Krona (+4.5%), and Australian Dollar (+4.1%); the Swiss Franc was down 0.9%.  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Brazilian Real (+5.8%), Korean Won (+2.3%), and Mexican Peso (+1.8%) and losses in the Russian Ruble (-2.3%) and South African Rand (-0.7%).
The US Treasury yield curve was little changed in July (see page 12).  10 year rates closed the month at 2.29%, down slightly from 2.31% at June month end.  Investment grade and high yield credit spreads tightened in July (see page 13).
In commodities, the GSCI index was up 4.6% in July (see page 11), with gains in Energy (+8.1%), Industrial Metals (+3.4%), and Precious Metals (+1.9%), and losses in Agriculture (-0.9%) and Livestock (-4.2%).  Within individual commodities, Gasoline (+12.4%), Heating Oil (+12.2%), and Coffee (+10.9%) saw the biggest gains, while Wheat (-9.7%), Natural Gas (-7.6%), and Lean Hogs (-6.3%) saw the biggest losses.  Gold was up 2% for the month.

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