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Monday, April 2, 2018

March 2018 - Monthly Market Commentary

March was a mixed month for global risk asskets. Developed and emerging market equities mostly moved lower, the USD weakened, the US yield curve flattened, the oil complex moved higher, and credit spreads widened. The Federal Reserve increased its benchmark rate by a quarter percentage point, with expectations for two to three additional hikes this year, and three hikes in 2019. The ECB dropped its pledge to accelerate its monthly bond purchases in case of economic weakness in a further step towards policy normalization. The US job report showed that 313,000 non-farm jobs were added in February (the 89th consecutive month of job creation), the unemployment rate remained at 4.1%, the labor force participation rate rose to 63%, and average hourly earnings rose 2.6% from a year earlier. 

Notable corporate transactions announced in March included the $8.3 billion acquisition of Microsemi by Microchip Technology, the $1.2 billion purchase of HSH Nordbank by Cerberus and JC Flowers, the $15.3 billion acquisition of XL Group by AXA, the purchase of 85% of MassMutual Japan by Nippon Life for $935 million, S&P Global’s $550 million purchase of Kensho Technologies, the $2.7 billion take private transaction of AmTrust, the $67 billion acquisition of Express Scripts by Cigna, Dana’s $6.1 billion purchase of GKN’s driveline division, the $11 billion purchase of Fibria Celulose bySuzano Papel e Celulose, the $1.8 billion acquisition of Oclaro by Lumentum, the $3.4 billion purchase of Orbotech by KLA-Tencor, Foxconn’s $866 million purchase of Belkin, and the $13 billion purchase of Novartis’ stake in their consumer health care joint venture by GlaxoSmithKline.

Developed market equities were lower in March (see page 8), with the largest losses in Australia (-4.1%), Japan (-3.1%), and Spain (-2.7%). US small caps outperformed large caps, with the Russell 2000 up 1.3% and the Russell 1000 down 2.3% (see page 3). Real Estate (+3.8%), Utilities (+3.8%), and Energy (+1.7%) were the best performing sectors in March; Financials (-4.3%), Materials (-4.2%), and IT (-3.9%) were the worst performing sectors (see page 2). Large cap growth (-2.7%) underperformed large cap value (-1.8%) in March (see page 3). Emerging market equities were mostly lower in March (see page 9), with the gains in Korea (+0.8%), Brazil (+0.4%), and Taiwan (+0.4%); Indonesia (-6.9%), Philippines (-5.8%), and India (-3.5%) were the worst performing. 

In currencies, the USD Index was down 0.5% in March (see page 10). The British Pound was up +1.9% and the Euro was up 0.9% against the USD, while the worst performing currencies were the Swiss Franc (-1.2%), Australian Dollar (-1.1%), and Swedish Krona (-0.8%). Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+3.6%), Korean Won (+2.1%), and Malaysian Ringgit (+1.5%); Turkish Lira (-3.6%), Brazilian Real (-2.0%), and Russian Ruble (-1.6%) were the worst performing.

US interest rates flattened in March (see page 12). 10 year rates closed the month at 2.74%, down from 2.86% at February month end. Investment grade and high yield spreads widened in March (see page 13).

In commodities, the GSCI index was up 2.2% in March (see page 11), with gains in Energy (+6.0%) and Precious Metals (+0.3%), and losses in Livestock (-7.2%), Industrial Metals (-4.5%), and Agriculture (-2.8%). Within individual commodities, Cocoa (+15.4%), Brent Crude (+7.6%), and Heating Oil (+6.1%) saw the biggest gains, while Live Cattle (-10.4%), Feeder Cattle (-9.6%), and Palladium (-8.9%) saw the biggest losses. Gold was up 0.4% for the month.

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