October was a strong month for global risk assets. Developed and emerging market equities were mostly higher, with large cap and growth outperformance in the US, the USD strengthened, commodities moved higher, and credit spreads tightened. Minutes from the September Fed meeting showed that the central bank would likely raise rates once more before year end despite inflation running below their 2% target. The ECB announced that it would continue its bond purchase program well into 2018, but that it would cut its monthly purchases in half to 30 billion euros starting in January; the ECB left interest rates unchanged and indicated that rate increases remain distant. US GDP grew at a 3% annual rate in the third quarter, the first time since 2014 that the economy has grown by at least 3% for two consecutive quarters. The US job report showed that 33,000 non-farm jobs were lost in September (largely attributed to hurricanes), the unemployment rate fell to 4.2%, and the labor force participation rate increased to 63.1%.
Notable corporate transactions announced in October included the $1.35 billion acquisition of Asatsu-DK by Bain Capital, Carlyle’s $670 million acquisition of Accella Performance Materials, the $1.2 billion purchase of Guggenheim’s ETF business by Invesco, the $700 million sale of Kindred Healthcare’s nursing facility business to BlueMountain Capital, Bpost’s $820 million acquisition of Radial, BASF’s $7 billion purchase of Bayer’s crop assets, Aramark’s $1.35 billion purchase of Avendra and $1 billion purchase of AmeriPride Services, the $385 million purchase of Smarte Carte by 3i Group, the $335 million acquisition of Ruby Tuesday by NRD Capital, Siris Capital’s $1 billion purchase of Intralinks, the $250 million purchase of Clinical Innovations by EQT, Assurant’ $2.5 billion acquisition of The Warranty Group, the $235 million acquisition of Praxis Engineering by CSRA, the $370 million purchase of Kee Safety by Investcorp, the $760 million acquisition of BluePay by FirstData, the $582 million sale of Noble Group’s US oil liquids business to Vitol, the $1.9 billion acquisition of BroadSoft by Cisco, TPG’s $625 million purchase of Exactech, the $450 million sale of NuTonomy to Delphi Automotive, the $1.9 billion merger of Strayer Education and Capella Education, Lennar’s $9.3 billion purchase of CalAtlantic, and the acquisition of 49% of the Brooklyn Nets by Joseph Tsai at a valuation of $2.3 billion.
Developed market equities were higher in October (see page 8), with the largest gains in Japan (+5.6%), Australia (+3.8%), and Germany (+3%); the worst performing were Italy (+0.1%), Hong Kong (+0.3%), and Spain (+1.6%). US small caps underperformed large caps, with the Russell 2000 up 0.9% and the Russell 1000 up 2.3% (see page 3). IT (+7.8%), Utilities (+3.9%), and Materials (+3.9%) were the best performing sectors in October, while Telecom (-7.6%), Consumer Staples (-1.4%), and Healthcare (-0.8%) were the worst performing (see page 2). Large cap value (+0.7%) underperformed large cap growth (+3.9%) in October (see page 3). Emerging market equities were mostly higher in October (see page 9), with the biggest gains in India (+6.5%), Korea (+6%), and Taiwan (+5.8%); Mexico (-2.6%), Russia (-0.8%), and Malaysia (flat) were the worst performing.
In currencies, the USD Index was up 1.6% in October (see page 10). The weakest developed market currencies against the USD were the New Zealand Dollar (-5%), Canadian Dollar (-3.3%), and Swiss Franc (-3%). Emerging market currencies were mixed against the USD, with the biggest gains in the Korean Won (+2.4%), Indian Rupee (+1%), and Taiwan Dollar (+0.5%) and losses in the Turkish Lira (-6%), Mexican Peso (-4.7%), and South African Rand (-4%).
The US Treasury yield curve shifted higher in October (see page 12). 10 year rates closed the month at 2.38%, up from 2.33% at September month end. Investment grade and high yield credit spreads tightened in October (see page 13).
In commodities, the GSCI index was up 3.8% in October (see page 11), with gains in Livestock (+9.6%), Energy (+4.9%), and Industrial Metals (+4.4%) and losses in Agriculture (-1.7%) and Precious Metals (-0.9%). Within individual commodities, Lean Hogs (+13.5%), Gasoline (+10.1%), and Live Cattle (+9.1%) saw the biggest gains, while Natural Gas (-9.1%), Wheat (-6.5%), and Corn (-2.6%) saw the biggest losses. Gold was down 1% for the month.
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