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Friday, December 1, 2017

November 2017 - Monthly Market Commentary

November was a mixed month for global risk assets.  Developed and emerging market equities were mixed, the USD weakened, the US yield curve continued to flatten, the oil complex moved higher, and high yield credit spreads widened slightly.  The Federal Reserve left rates unchanged at its November 1 meeting with no surprises in its statement; minutes from the meeting reinforced expectations for an additional rate hike in December.  For the first time in a decade, the Bank of England raised its benchmark interest rate, but signaled that any additional tightening would be gradual.  The US job report showed that 261,000 non-farm jobs were added in October, the unemployment rate fell to 4.1%, and the labor force participation rate fell to 62.7%. 
Notable corporate transactions announced in November included the $780 million purchase of full control of the Kirin-Amgen joint venture by Amgen, Permira’s $1.75 billion acquisition of Duff & Phelps, the $384 million purchase of Tazo tea from Starbucks by Unilever, the $950 million acquisition of a majority stake in AmTrust Financial’s US based fee business by Madison Dearborn, Synopsys Inc’s $565 million purchase of Black Duck Software, Leonard Green’s $843 million acquisition of Pure Gym, Total’s $2 billion purchase of Engie SA’s LNG business, James Hardie’s $548 million purchase of Fermacell from Xella International, the $1 billion purchase of by Beijing Bytedance Technology, the acquisition of ShyaHsin Packaging by Blackstone for between $800-900 million, B.Riley Financial’s $143 million purchase of magicJack VocalTec, the $6 billion purchase of Cavium by Marvell Technology, AmerisourceBergen’s $815 million acquisition of H.D. Smith, the $1.9 billion merger of Stone Energy and Talos Energy, the $1.85 billion purchase of Time Inc. by Meredith, the $875 million acquisition of SeaStar Solutions by Dometic Group, the $2.9 billion purchase of a major stake in Sun Art Retail Group by Alibaba, the $425 million acquisition of Care Investment Trust by Mainstreet, Thoma Bravo’s $1.6 billion purchase of Barracuda, the $1.2 billion sale of Inkia Energy to I Squared Capital, the $521 million acquisition of Bazaarvoice by Marlin Equity, the $300 million purchase of Wall Street English by Baring Private Equity and CITIC Capital, Unilver’s acquisition of Sundial Brands, and the $2.9 billion acquisition of Buffalo Wild Wings by Roark Capital.
Developed market equities were mixed in November (see page 8), with the largest gains in Hong Kong (+3.5%), the S&P500 (+3%), and Australia (+1.5%); the worst performing were Spain (-2.9%), France (-2.1%), and Italy (-1.9%).  US small caps performed roughly in line with large caps, with the Russell 2000 up 2.9% and the Russell 1000 up 3% (see page 3).  Telecom (+6%), Consumer Staples (+5.7%), and Consumer Discretionary (+5.1%) were the best performing sectors in November, while Materials (+1%), IT (+1.1%), and Energy (+1.8%) were the worst performing (see page 2).  Large cap value (+3.1%) slightly outperformed large cap growth (+3%) in November (see page 3).  Emerging market equities were mostly lower in November (see page 9), with the biggest gains in Russia (+3.5%), China (+1.6%), and Thailand (+0.1%); Argentina (-4.7%), Taiwan (-3.8%), and Mexico (-3.2%) were the worst performing. 
In currencies, the USD Index was down -1.6% in November (see page 10).  The Norwegian Dollar was down (-1.8%) against the USD, while the strongest currencies against the USD were the Euro (+2.2%), British Pound (+1.8%), and Swiss Franc (+1.4%).  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Malaysian Ringgit (+3.5%), South African Rand (+3%), and Korean Won (+2.8%) and losses in the Turkish Lira (-3.3%) and Russian Ruble (-0.2%).
The US Treasury yield curve flattened in November (see page 12).  10 year rates closed the month at 2.41%, up from 2.38% at October month end, while 1 year rates widened 19bps during the month.  Investment grade spreads were little changed and high yield credit spreads widened in November (see page 13).
In commodities, the GSCI index was up 1.4% in November (see page 11), with gains in Energy (+3.4%) and Agriculture (+0.5%), and losses in Industrial Metals (-3.2%) and Livestock (-5.5%); Precious Metals were flat.  Within individual commodities, Cotton (+6.3%), Crude Oil (+5.2%), and Palladium (+3.3%) saw the biggest gains, while Lean Hogs (-7.8%), Aluminum (-5.4%), and Live Cattle (-5%) saw the biggest losses.  Gold was up 0.3% for the month.

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