Global risk assets were mixed in July, as developed market equities were mostly higher, emerging market equities were mostly lower, credit spreads were little changed, the US dollar strengthened, and the oil complex rose slightly. At its July meeting, the Federal Reserve cut interest rates by 25bps, announced an early end to their balance sheet runoff, and while the Chairman did not rule out further reductions, he indicated that it was “not the beginning of a long series of rate cuts”. The ECB held rates at current levels, but indicated that it would continue its asset purchase program for “as long as necessary”, and that it would continue its accommodative stance “for a prolonged period of time”. Congress and the White House reached a deal to suspend the debt ceiling beyond the next election and to increase federal spending. US GDP grew at 2.1% in the second quarter, down from 3.1% in the prior quarter. China, meanwhile, reported 6.2% GDP growth, lower than forecast, and the lowest level since quarterly growth statistics began being published in 1992. The US jobs report showed that 224,000 jobs were added in June (the 105th consecutive month of job creation), the unemployment rate ticked higher to 3.7%, the labor force participation rate increased to 62.9%, and average hourly earnings rose 3.1% from a year earlier.
Developed market equities were mixed in July (see page 8), with the biggest gains in Australia (+2.5%), the UK (+2.1%), and the S&P500 (+1.4%). US small caps underperformed large caps, with the Russell 2000 up 0.6% and the Russell 1000 up 1.6% (see page 3). Communication Services (+3.4%), IT (+3.3%), and Consumer Staples (+2.5%) were the best performing sectors in July; Energy (-1.8%), Healthcare (-1.6%), and Materials (-0.4%) were the worst performing sectors (see page 2). Large cap value (+0.8%) underperformed large cap growth (+2.3%) in July (see page 3). Emerging market equities were mostly lower in July (see page 9), with the largest gains in Taiwan (+3.4%), Russia (+0.8%), and Brazil (+0.7%), and the largest losses in India (-5.5%), Mexico (-5%), and Korea (-3.9%).
In currencies, the USD Index was higher (+2.5%) in July (see page 10), with the biggest losses against the USD seen in the British Pound (-4.2%), Swedish Krona (-3.9%), and Norwegian Krone (-3.8%). Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+3.7%), Brazilian Real (+1%), and Mexican Peso (+0.4%), and the largest losses in the Korean Won (-2.7%), South African Rand (-1.8%), and Singapore Dollar (-1.5%).
The US interest rate curve remained inverted in July, shifted lower at the short end, and higher in the belly of the curve (see page 12). 10 year rates closed the month at 2.01%, unchanged from June month end. US investment grade and high yield spreads were little changed in July (see page 13).
In commodities, the GSCI index was down 0.2% in July (see page 11), with gains in Livestock (+3.1%), Precious Metals (+1.5%), Industrial Metals (+0.6%), and Energy (+0.6%), and losses in Agriculture (-5.5%). Within individual commodities, Silver (+7.1%), Platinum (+4.7%), and Lean Hogs (+4) saw the biggest gains, while Coffee (-8.8%), Wheat (-7.4%), and Corn (-5.6%) saw the biggest losses. Gold was up 1% for the month.
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