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Tuesday, May 1, 2018

April 2018 - Monthly Market Commentary

April was another mixed month for global risk assets. Developed market equities moved higher, emerging market equities were mixed, the USD strengthened, the US yield curve steepened, the oil complex moved higher, and credit spreads tightened. The Federal Reserve minutes showed increased confidence that inflation would hit their 2% target in the coming year. At its policy meeting, the ECB made no change to interest rates and reiterated that it intends to keep rates at current levels well past the end of its asset purchase program. First quarter US GDP grew at a 2.3% annual rate, with a strong reading on business investment. The US job report showed that 103,000 non-farm jobs were added in March (the 90th consecutive month of job creation), the unemployment rate remained at 4.1%, the labor force participation rate fell slightly to 62.9%, and average hourly earnings rose 2.7% from a year earlier.

Notable corporate transactions announced in April included the $1 billion acquisition of part of GE’s healthcare division by Veritas Capital, the $8.7 billion purchase of AveXis by Novartis, the $1.6 billion acquisition of Exclusive Group by Permira, the purchase of Merck’s consumer health business by P&G for $4.2 billion, Francisco Partners’ $ 3.4 billion purchase of Verifone Systems, the $5.5 billion acquisition of NEX by CME, the $2.7 billion acquisition of Mobike by Meituan Dianping, JM Smucker’s $1.9 billion purchase of Ainsworth Pet Nutrition, the $5.4 billion purchase of Federal Mogul by Tenneco, the $450 million acquisition of Sunlight Supply by Scotts Miracle-Gro, the $2.4 billion purchase of Zentiva by Advent International, The Stars Group’s $4.7 billion purchase of Sky Betting & Gaming, the $2 billion acquisition of Mitel by Searchlight Capital, the $64 billion acquisition of Shire by Takeda, Square’s $365 million purchase of Weebly, the $26 billion merger of T-Mobile and Sprint, the $8.4 billion acquisition of DCT Industrial by Prologis, the $10.1 billion sale of Walmart’s UK business to J Sainsbury, the $20 billion purchase of Andeavor by Marathon Petroleum, and the $4.7 billion acquisition of ILG by Marriot Vacations.

Developed market equities were higher in April (see page 8), with the largest gains in Italy (+7.1%), UK (+6.8%), and France (+6.6%). US small caps outperformed large caps, with the Russell 2000 up 0.9% and the Russell 1000 up 0.3% (see page 3). Energy (+9.4%), Consumer Discretionary (+2.4%), and Utilities (+2.1%) were the best performing sectors in April; Consumer Staples (-4.3%), Industrials (-2.8%), and Telecom (-1.0%) were the worst performing sectors (see page 2). Large cap growth (+0.3%) was in line with large cap value (+0.3%) in April (see page 3). Emerging market equities were mixed in April (see page 9), with gains in India (+6.5%), Mexico (+5.2%), and Korea (+3.0%); Argentina (-4.7%), Indonesia (-3.6%), and Taiwan (-3.2%) were the worst performing.

In currencies, the USD Index was up 2.1% in April (see page 10). The Canadian Dollar was up +0.4% against the USD, while the worst performing currencies were the Swedish Krona (-4.7%), Swiss Franc (-3.7%), and Japanese Yen (-2.8%). Emerging market currencies were lower against the USD, with the largest losses in the Russian Ruble (-9.9%), Brazilian Real (-5.7%), and South African Rand (-4.9%); the Korean Won (-0.9%), Chinese Yuan (-0.9%), and Singapore Dollar (-1.1%) were the best performing.

US interest rates steepened in April (see page 12). 10 year rates closed the month at 2.95%, up from 2.74% at March month end. Investment grade and high yield spreads tightened in April (see page 13).

In commodities, the GSCI index was up 5.0% in April (see page 11), with gains in Energy (+6.5%), Industrial Metals (+4.3%), Agriculture (+2.8%), and Livestock (+1.0%), and losses in Precious Metals (-0.4%). Within individual commodities, Aluminum (+13.9%), Wheat (+9.6%), and Cocoa (+9.0%) saw the biggest gains, while Sugar (-5.2%), Lean Hogs (-4.9%), and Platinum (-2.9%) saw the biggest losses. Gold was down 0.5% for the month.

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