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Monday, July 2, 2018

June 2018 - Monthly Market Commentary

June was another mixed month for global risk assets. Developed market equities were mixed, with the US small cap Russell 2000 index hitting an intra-month all-time high, emerging market equities were mostly lower with a very large spread between winners and losers, the USD strengthened, US interest rates increased, the oil complex moved higher, and credit spreads widened. The Federal Reserve increased rates by 25 basis points at its June meeting, the seventh rate hike since this hiking cycle started in 2015, with two more increases expected this year. The ECB indicated that it would end its bond buying program by year end, but that it would wait through the summer of 2019 before raising interest rates. The BOJ, meanwhile, indicated that it would be making no changes to its own quantitative easing policies. The US job report showed that 223,000 non-farm jobs were added in May (the 92nd consecutive month of job creation), the unemployment rate fell to 3.8%, the labor force participation rate fell slightly to 62.7%, and average hourly earnings rose 2.7% from a year earlier.

Notable corporate transactions announced in June included the $7.5 billion acquisition of GitHub by Microsoft, the $395 million acquisition of Rawlings Sporting Goods by Seidler Equity and Major League Baseball, the purchase of AmTrust Financial Services by a group led by Stone Point Capital for $2.95 billion, Fortive’s $2.8 billion purchase of the advanced sterilization products unit of Johnson & Johnson, the $2.1 billion acquisition of LifeScan by Platinum Equity, the $2.5 billion acquisition of Varsity Brands by Bain Capital, the $5.3 billion purchase of Foundation Medicine by Roche, Veritas Capital’s $4.9 billion purchase of Cotiviti, the $400 million purchase of Hyperwallet by PayPal, the $1.6 billion acquisition of AppNexus by AT&T, the $10.9 billion purchase of Pinnacle Foods by Conagra Brands, the sale by Tyson Foods of its Sara Lee frozen bakery and Van’s businesses to Kohlberg & Co., Advent International’s purchase of an 80% stake in Walmart Brazil for $0, the $6 billion merger of Nets and Concardis, the $2 billion acquisition of Europac by DS Smith, Workday’s $1.6 billion purchase of Adaptive, the $7 billion purchase of USG by Knauf, the $1.4 billion purchase of Rent-A-Center by Vintage Capital, the $1.4 billion acquisition of Worldwide Flight Services by Cerberus Capital, the $4.2 billion purchase of a stake in SFR TowerCo by KKR, the $2 billion purchase of by Siris Capital, GE’s spin-off of its healthcare business and the divestiture of its stake in Baker Hughes, and the $1 billion acquisition of PillPack by Amazon.

Developed market equities were mixed in June (see page 8), with the largest gains in Australia (+3.7%), Spain (+2.6%), and Canada (+1.6%); the S&P500 was up 0.6%. The largest losses were in Hong Kong (-4.9%), Germany (-2.4%), and France (-1%). US small caps slightly outperformed large caps, with the Russell 2000 up 0.7% and the Russell 1000 up 0.6% (see page 3). Consumer Staples (+4.5%), Real Estate (+4.4%), and Consumer Discretionary (+3.6%) were the best performing sectors in June; Industrials (-3.3%), Financials (-1.9%), and IT (-0.4%) were the worst performing sectors (see page 2). Large cap growth (+1%) outperformed large cap value (+0.2%) in June (see page 3). Emerging market equities were mostly lower in June (see page 9), with losses in Argentina (-22%), Thailand (-7.1%), and Brazil (-5.3%); Mexico (+7.3%), Russia (+0.9%), and India (+0.5%) were the best performing.

In currencies, the USD Index was up 0.5% in June (see page 10). The Norwegian Krone was up +0.3% against the USD, while the worst performing currencies were the New Zealand Dollar (-3.3%), Australian Dollar (-2.2%), and Japanese Yen (-1.7%). Emerging market currencies were mostly lower against the USD, with the largest losses in the South African Rand (-7.5%), Brazilian Real (-3.8%), and Chinese Yuan (-3.4%).

US interest rates rose in June (see page 12). 10 year rates closed the month at 2.86%, unchanged from May month end. Investment grade and high yield spreads widened in June (see page 13).

In commodities, the GSCI index was up 1.4% in June (see page 11), with gains in Energy (+5.3%) and Livestock (+2.8%), and losses in Agriculture (-10.1%), Industrial Metals (-4.6%), and Precious Metals (-3.5%). Within individual commodities, Crude Oil (+10.9%), Live Cattle (+2.8%), and Feeder Cattle (+2.8%) saw the biggest gains, while Soybeans (-15.3%), Corn (-10.8%), and Coffee (-8.5%) saw the biggest losses. Gold was down 3.7% for the month.

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