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Tuesday, September 4, 2018

August 2018 - Monthly Market Commentary

August was a mixed month for global risk assets. Developed and emerging market equities were mixed, with US and growth outperformance, the USD strengthened, especially versus EM currencies, the US interest rate curve flattened, US corporate credit spreads were little changed, and the oil complex moved higher. The Federal Reserve left interest rates unchanged at its August meeting, but indicated that “economic activity has been rising at a strong rate” and that another interest rate increase was likely in September. The Bank of England raised its benchmark rate to 0.75%, the highest level since 2009. The US job report showed that 157,000 non-farm jobs were added in June (the 94th consecutive month of job creation), the unemployment rate decreased to 3.9%, the labor force participation rate held at 62.9%, and average hourly earnings rose 2.7% from a year earlier.

Notable corporate transactions announced in August included the $2.4 billion acquisition of Duo Security by Cisco, the $1.4 billion purchase of Axa Life Europe by Cinven, the $5.3 acquisition of Bemis by Amcor, the $1.2 billion purchase of Deep Gulf Energy by Kosmos Energy, the $5.3 billion acquisition of Dun & Bradstreet by an investor group led by CC Capital, Amadeus’ $1.5 billion purchase of TravelClick, the $3.4 billion purchase of an additional stake in Canopy Growth by Constellation Brands, the $8.4 billion acquisition of Energen by Diamondback Energy, the $1.6 billion purchase of KMG Chemicals by Cabot Microelectronics, Best Buy’s $800 million purchase of GreatCall, the $3.2 billion purchase of SodaStream by Pepsi, the $2.2 billion acquisition of Keystone Foods by Tyson Foods, the $800 million purchase of Ziylo by Novo Nordisk, the $300 million purchase of Zoe’s Kitchen by Cava Group, the Hartford’s $2.1 billion purchase of the Navigators Group, the $2.2 billion acquisition of Quadrant Energy by Santos, the $11 billion merger of TPG Telecom and Vodafone Hutchinson Australia, Stryker’s $1.4 billion purchase of K2M, the $473 million purchase of Cambian by CareTech, the $1.7 billion purchase of Universal Hospital Services by Federal Street Acquisition, and the $1.5 billion acquisition of esure and Bain Capital.

Developed market equities were mixed in August (see page 8), with gains in the S&P500 (+3.2%) and Australia (+1%), and the largest losses in Italy (-9%), Spain (-5.4%), and the UK (-3.3%). US large caps underperformed small caps, with the Russell 1000 up 3.4% and the Russell 2000 up 4.3% (see page 3). IT (+6.9%), Consumer Discretionary (+5.1%), and Healthcare (+4.4%) were the best performing sectors in August; Energy (-3.3%), Materials (-0.5%), and Industrials (+0.3%) were the worst performing sectors (see page 2). Large cap growth (+5.5%) outperformed large cap value (+1.5%) in August (see page 3). Emerging market equities were mixed in August (see page 9), with the largest gains in India (+4.4%), the Philippines (+3.2%), and Indonesia (+3%), and the largest losses in Argentina (-23.6%), China (-3.8%), and Brazil (-2.8%).

In currencies, the USD Index was up 0.6% in August (see page 10). The Swiss Franc (+2.2%) and Japanese Yen (+0.7%) gained against the USD, while the Swedish Krona (-3.9%), Australian Dollar (-3.2%), and New Zealand Dollar (-2.9%) had the largest losses. Emerging market currencies were mostly lower against the USD, with gains in the Thai Baht (+1.2%), and the largest losses in the Turkish Lira (-25%), South African Rand (-9.6%), and Brazilian Real (-7.3%).

The US interest rate curve flattened in August (see page 12). 10 year rates closed the month at 2.86%, down from 2.96% at July month end. US investment grade and high yield spreads were little changed in August (see page 13).

In commodities, the GSCI index was up 1.1% in August (see page 11), with gains in Energy (+3.6%), and losses in Agriculture (-5.5%), Industrial Metals (-2.9%), Precious Metals (-2.5%), and Livestock (-0.3%). Within individual commodities, Cocoa (+6%), Heating Oil (+4.9%), and Natural Gas (+4.8%) saw the biggest gains, while Coffee (-9.8%), Cotton (-8.1%), and Soybeans (-8.1%) saw the biggest losses. Gold was down 2% for the month.

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