September was a fairly strong month for global risk assets, as developed and emerging market equities mostly rose, global interest rates moved higher from historic August lows, the US yield curve steepened, but remained inverted, the US dollar strengthened, credit spreads widened, and gold retreated. The Federal Reserve cut interest rates by 25bps, and highlighted strong household spending and weaker business investment and exports. The August reading of the ISM’s manufacturing index fell below 50 for the first time in three years, a sign of contraction in the sector. China’s central bank cut bank reserve requirements for the third time this year in an effort to stimulate the economy; China’s exports unexpectedly fell 1% in August from a year earlier. In Europe, the ECB’s outgoing President Draghi announced a cut to its key interest rate and a new package of bond purchases. The US jobs report showed that 130,000 jobs were added in August (the 107th consecutive month of job creation), the unemployment rate held at 3.7%, the labor force participation rate increased to 63.2%, average hourly earnings rose 3.2% from a year earlier, and the total labor force hit a record high of 163.9 million.
Developed market equities were mostly higher in September (see page 8), with the biggest gains in Japan (+5.9%), Spain (+5.1%), and Italy (+3.6%), and losses in Hong Kong (-0.6%). US small caps outperformed large caps, with the Russell 2000 up 2.1% and the Russell 1000 up 1.7% (see page 3). Financials (+4.6%), Utilities (+4.3%), and Energy (+3.8%) were the best performing sectors in September; Healthcare (-0.2%), Communication Services (+0.4%), and Consumer Discretionary (+0.9%) were the worst performing sectors (see page 2). Large cap value (+3.6%) outperformed large cap growth (flat) in September (see page 3). Emerging market equities were mostly higher in September (see page 9), with gains in Argentina (+8.5%), Korea (+5.8%), and Brazil (+3.3%), and the largest losses in Indonesia (-2.8%), the Philippines (-2.4%), and Malaysia (-1%).
In currencies, the USD Index was higher (+0.5%) in September (see page 10), with the biggest losses seen in the Japanese Yen (-1.7%), New Zealand Dollar (-1%), and Swiss Franc (-0.8%); the British Pound (+1.1%) and Canadian Dollar (+0.5%) moved higher against the USD. Emerging market currencies were mostly higher against the USD, with the largest gains in the Turkish Lira (+3.3%), Russian Ruble (+2.9%), and Mexican Peso (+1.7%), and losses in the Brazilian Real (-0.3%).
The US interest rate curve steepened in September, but remained inverted (see page 12). 10 year rates closed the month at 1.66%, up from 1.50% at August month end. US investment grade and high yield spreads widened in September (see page 13).
In commodities, the GSCI index was up 1.7% in September (see page 11), with gains in Livestock (+7.8%), Agriculture (+5.3%), Energy (+0.8%), and Industrial Metals (+0.6%), and losses in Precious Metals (-3.9%). Within individual commodities, Lean Hogs (+10.8%), Cocoa (+10.1%), and Feeder Cattle (+9.2) saw the biggest gains, while Silver (-7.2%), Platinum (-5%), and Gold (-3.5%) saw the biggest losses.
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