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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Wednesday, May 1, 2019

April 2019 - Monthly Market Commentary

April was a fairly strong month for global risk assets. Global equities rose, with continued outperformance in large caps, growth, and developed markets, credit spreads tightened, the US yield curve remained somewhat inverted, and the oil complex continued its strong YTD rally. Minutes from the March policy meeting of the Federal Reserve showed that a majority of officials expect to leave “the target range unchanged for the remainder of the year”. The Commerce Department reported that first quarter US GDP grew at a better than expected rate of 3.2%, the strongest Q1 rate in four years. The ECB expressed cautiousness with regard to the European economic outlook and indicated that it had “plenty of instruments” available should it need to implement additional stimulus, that it was reviewing the impact of negative rates on European banks, and that, like the Fed, it was unlikely to raise rates for the remainder of 2019; at the end of the month, the EU’s statistics agency reported that first quarter Eurozone GDP grew at 1.5%, ahead of expectations. The Chinese economy grew at a reported rate of 6.4% in the first quarter, below the 6.6% growth in 2018 and at the slowest pace in ten years, but above expectations, as industrial production rose 8.5% in March; later in the month, China’s manufacturing PMI showed a decline in April, raising uncertainty about the resiliency of the March rebound. The US job report showed that 196,000 non-farm jobs were added in March (the 102nd consecutive month of job creation), the unemployment rate held at 3.8%, the labor force participation rate moved lower to 63%, and average hourly earnings rose 3.2% from a year earlier.

Notable corporate transactions announced in April included the $1.2 billion sale of Keebler and other brands by Kellogg to Ferrero, a $38 billion bidding war for Anadarko Petroleum by Chevron and Occidental culminating at month end with a $10 billion investment by Berkshire Hathaway in Occidental, the $4.4 billion purchase of Alliance Data’s Epsilon unit by Publicis, the $1.2 billion acquisition of Paragon Bioservices by Catalent, DSV’s $4.6 billion purchase of Panalpina, the $1.2 billion acquisition of Tranzact by Willis Towers Watson, the $3.6 billion purchase of Oryx by Stonepeak Infrastructure Partners, the $2.8 billion acquisition of DenizBank by Emirates NBD, the $750 million sale of Trilogy Education to 2U, the $8.6 billion purchase of a 90% stake in Transportadora Associada de Gas by a group led by Engie, the $850 million acquisition of Axoima by Deutsche Borse, the $1.2 billion acquisition of Wells Fargo’s retirement and trust unit to Principal Financial, the $1.7 billion purchase of Electronics for Imaging by Siris Capital, Waste Management’s $4.9 billion purchase of Advanced Disposal Services, Nippon Paint’s $2.7 billion acquisition of DuluxGroup, the $2.7 billion purchase of ConocoPhillips’ North Sea assets by Chrysaar, Canopy Growth’s $3.4 billion acquisition of Acreage Holdings, the $1.4 billion purchase of CapeOmega by Partners Group, the $1.4 billion purchase of JR Automation by Hitachi, and the $3.7 billion acquisition of Lord by Parker Hannifin.

Developed market equities rose in April (see page 8), with the biggest gains in Germany (+7%), France (+4.8%), and Spain (+4.4%). US small caps underperformed large caps, with the Russell 2000 up 3.4% and the Russell 1000 up 4% (see page 3). Financials (+9%), Communication Services (+6.5%), and IT (+6.4%) were the best performing sectors in April; Healthcare (-2.6%), Real Estate (-0.5%), and Energy (+0.1%) were the worst performing sectors (see page 2). Large cap value (+3.5%) underperformed large cap growth (+4.5%) in April (see page 3). Emerging market equities were mostly higher in April (see page 9), with the largest gains in Taiwan (+4.2%), Korea (+3.3%), and Mexico (+3.2%), and losses in Argentina (-7.9%).

In currencies, the USD Index was higher (+0.2%) in April (see page 10), with the biggest gains against the Swiss Franc (-2.3%), New Zealand Dollar (-1.9%), and Swedish Krona (-1.8%). Emerging market currencies were mixed, with the largest gains in the Mexican Peso (+2.6%), Russian Ruble (+1.8%), and South African Rand (+1.4%), and the largest losses in the Turkish Lira (-6.7%), Korean Won (-2.3%), and Malaysian Ringgit (-1.3%).

The US interest rate curve steepened, but remained somewhat inverted in April (see page 12). 10 year rates closed the month at 2.50%, up from 2.41% at March month end. US investment grade and high yield spreads tightened in April (see page 13).

In commodities, the GSCI index was up 2.8% in April (see page 11), with gains in Energy (+6.4%), and losses in Industrial Metals (-3.5%), Agriculture (-3.4%), Livestock (-2.6%), and Precious Metals (-0.8%). Within individual commodities, Gasoline (+11.6%), Brent Crude (+7.5%), and Crude Oil (+6.5) saw the biggest gains, while Wheat (-6.9%), Aluminum (-6.5%), and Soybeans (-4.6%) saw the biggest losses. Gold was down 0.8% for the month.

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