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

Wednesday, April 1, 2020

March 2020 - Monthly Market Commentary

Risk assets sold off sharply across all asset classes in March, as the corona virus spread across the globe and its devastating impact on the global economy came into focus. Global equities moved sharply lower, with the energy sector, small caps, and value stocks being the hardest hit, the US yield curve moved sharply lower and steepened, the US dollar strengthened, credit spreads widened, and the oil complex collapsed due to a combination of demand destruction stemming from the economic slowdown and increased supply resulting from a breakdown in production level agreements between OPEC and Russia. The Federal Reserve took a series of emergency steps during March, including cutting rates to zero, and launching an unlimited and open-ended asset purchase program, including, for the first time, corporate bonds, a program to support the flow of credit to large and small businesses, a commercial paper funding facility, and a lending facility for foreign central banks. For the week ended March 21, the number of Americans filing for unemployment hit a record 3.3 million, rendering the February US jobs report the ultimate lagging indicator; this report showed that 273,000 jobs were added in February (the 113th consecutive month of job creation), the unemployment rate moved lower to 3.5% (a 50 year low), the labor force participation rate held at 63.4%, average hourly earnings rose 3% from a year earlier, and of the total labor force of 164.6 million, 158.8 million were employed.

Developed market equities moved sharply lower in March (see page 8), with the biggest losses in Italy (-22.4%), Spain (-22%), and Australia (-21.1%). US small caps underperformed large caps, with the Russell 2000 down 21.7%, and the Russell 1000 down 13.2% (see page 3). All 11 S&P 500 sectors were down in March with the biggest losses in Energy (-34.8%), Financials (-21.3%), and Industrials (-19.2%). Large cap growth (-9.8%) outperformed large cap value (-17.1%) in March (see page 3). Emerging market equities moved lower in March (see page 9), with the biggest losses in Argentina (-32.1%), Brazil (-28.9%), and the Philippines (-21.8%).

In currencies, the USD Index was higher (+0.9%) in March (see page 10). The Japanese Yen (+0.5%) and Swiss Franc (+0.4%) strengthened against the USD, while the Norwegian Krone (-9.6%), Australian Dollar (-5.9%), and Canadian Dollar (-4.8%) saw the biggest losses. Emerging market currencies were mostly lower against the USD, with gains in the Taiwanese Dollar (+0.1%), and the biggest losses in the Mexican Peso (-17.3%), Russian Ruble (-14.8%), and Brazilian Real (-14.1%).

The US interest rate curve moved lower and steepened in March (see page 12). 10 year rates closed the month at 0.67%, down from 1.15% at February month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index moved lower (-29.4%) in March (see page 11), with losses in Energy (-47.7%), Livestock (-12.8%), Industrial Metals (-10.2%), and Agriculture (-4.1%), and gains in Precious Metals (+0.4%). Within individual commodities, Wheat (+8.4%), Coffee (+7.4%), and Gold (+1.8%) saw the biggest gains, while Gasoline (-60.2%), Crude Oil (-54.7%), and Brent Crude (-48.4%) saw the biggest losses.

Contact CurAlea Associates for a Daily Market Review.

Monday, March 2, 2020

February 2020 - Monthly Market Commentary

Risk assets sold off sharply on coronavirus fears in February, as global equities moved sharply lower, the US yield curve moved lower across the curve and inverted further in the middle of the curve, the US dollar strengthened, credit spreads widened, and the oil complex sold off sharply. In the twelve months through January, the CPI index rose 2.5% and the PPI index rose 2.1%. The Chinese CPI index rose 5.4% in January, the highest level in eight years. Minutes from the January Fed meeting suggested that the “current stance of monetary policy was appropriate”, though by February month end Fed Chairman Powell said that the central bank would “act as appropriate to support the economy”. The US ISM manufacturing activity index rose in January to 50.9, signaling slight expansion in the sector, while the nonmanufacturing index rose to 55.5. The US jobs report showed that 225,000 jobs were added in January (the 112th consecutive month of job creation), the unemployment rate moved up to 3.6%, the labor force participation rate rose to 63.4%, average hourly earnings rose 3.1% from a year earlier, and the total labor force hit a record high of 164.6 million, of which 158.7 million were employed.

Developed market equities moved lower in February (see page 8), with the biggest losses in Japan (-9.6%), the UK (-9.1%), and Germany (-8.4%). US small caps slightly underperformed large caps, with the Russell 2000 down 8.4%, and the Russell 1000 down 8.2% (see page 3). All 11 S&P 500 sectors were down in February with the biggest losses in Energy (-14.6%), Financials (-11.2%), and Utilities (-9.9%). Large cap growth (-6.8%) outperformed large cap value (-9.7%) in February (see page 3). Emerging market equities moved lower in February (see page 9), with the biggest losses in Thailand (-11.2%), Russia (-10.5%), and Argentina (-8.3%).

In currencies, the USD Index was higher (+0.8%) in February (see page 10). The Swedish Krona (+0.2%) and Japanese Yen (+0.2%) strengthened against the USD, while the New Zealand Dollar (-3.4%), British Pound (-2.9%), and Australian Dollar (-2.6%) saw the biggest losses. Emerging market currencies were mostly lower against the USD, with gains in the Chinese Yuan (+0.3%), and the biggest losses in the Russian Ruble (-4.4%), Brazilian Real (-4.2%), and Turkish Lira (-4.2%).

The US interest rate curve moved lower and inverted further in the middle of the curve in February (see page 12). 10 year rates closed the month at 1.15%, down from 1.51% at January month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index moved lower (-8.4%) in February (see page 11), with losses in Energy (-12.4%), Livestock (-6.1%), Agriculture (-2.9%), Precious Metals (-1.9%), and Industrial Metals (-1.2%). Within individual commodities, Palladium (+12.3%), Coffee (+6.4%), and Copper (+1.4%) saw the biggest gains, while Crude Oil (-13.5%), Brent Crude (-12.5%), and Natural Gas (-10.1%) saw the biggest losses. Gold was down 1.2% in February.

Contact CurAlea Associates for a Daily Market Review.

Monday, February 3, 2020

January 2020 - Monthly Market Commentary

January was a fairly weak month for global risk assets, as developed and emerging market equities were mostly lower, the US yield curve flattened and inverted in the middle of the curve, the US dollar strengthened, credit spreads widened, and the oil complex sold off sharply. The month started with the killing of Iranian general Soleimani, and ended with global fears over the coronavirus epidemic. The US and China signed their phase one trade deal, and fourth quarter earnings reports were strong, particularly for the US tech giants. Fourth quarter US GDP grew at 2.1%, and the Federal Reserve kept interest rates unchanged at their January meeting. The US ISM manufacturing activity index fell slightly in December to 47.2, the lowest level since June 2009, signaling continued contraction in the sector, while the nonmanufacturing index rose to 55. US consumer prices rose 0.2% in December, and 2.3% year over year. The US jobs report showed that 145,000 jobs were added in December (the 111th consecutive month of job creation), the unemployment rate held at 3.5%, the labor force participation rate held at 63.2%, average hourly earnings rose 2.9% from a year earlier, and the total labor force hit a record high of 164.5 million, of which 158.8 million were employed.

Developed market equities were mostly lower in January (see page 8), with gains in Australia (+5.1%) and Canada (+1.6%), and the largest losses in Hong Kong (-4.8%), the UK (-3.3%), and France (-2.2%). US small caps underperformed large caps, with the Russell 2000 down 3.2%, and the Russell 1000 up 0.1% (see page 3). Utilities (+6.7%), IT (+4%), and Real Estate (+1.4%) were the best performing sectors; Energy (-11.1%), Materials (-6.2%), and Healthcare (-2.7%) were the worst performing sectors (see page 2). Large cap growth (+2.2%) outperformed large cap value (-2.2%) in January (see page 3). Emerging market equities were mostly lower in January (see page 9), with gains in Mexico (+1.6%), and the biggest losses in the Philippines (-7.7%), China (-4.9%), and Thailand (-4.9%).

In currencies, the USD Index was higher (+1%) in January (see page 10). The Swiss Franc (+0.5%) and Japanese Yen (+0.2%) strengthened against the USD, while the Australian Dollar (-4.7%), Norwegian Krone (-4.6%), and New Zealand Dollar (-4.1%) saw the biggest losses. Emerging market currencies were mostly lower against the USD, with gains in the Indonesian Rupiah (+0.4%) and Mexican Peso (+0.4%), and the biggest losses in the South African Rand (-6.8%), Brazilian Real (-6.1%), and Thai Baht (-4.8%).

The US interest rate curve flattened and inverted in January (see page 12). 10 year rates closed the month at 1.51%, down from 1.92% at December month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index moved lower in January (see page 11), with gains in Precious Metals (+3.7%), and losses in Energy (-15%), Livestock (-10.2%), Industrial Metals (-7.1%), and Agriculture (-2.7%). Within individual commodities, Palladium (+16.7%), Cocoa (+9.5%), and Sugar (+9%) saw the biggest gains, while Lean Hogs (-21.9%), Coffee (-20.8%), and Heating Oil (-19.4%) saw the biggest losses. Gold was up 4% in January.

Contact CurAlea Associates for a Daily Market Review.

Thursday, January 2, 2020

December 2019 - Monthly Market Commentary

December was a very strong month for global risk assets, as global equities rose, the US yield curve steepened, the US dollar weakened, credit spreads tightened, and the oil complex rallied. The US and China reached a phase one trade deal that is to be signed in January. The Federal Reserve, ECB (at Christine Largarde’s first policy meeting as President), Bank of Japan, and Bank of England kept interest rates unchanged at their respective December meetings. The US ISM manufacturing activity index fell slightly in November, and remained below 50, signaling continued contraction in the sector, while the non-manufacturing index fell to 53.9. US consumer prices rose 0.3% in November, and 2.1% year over year. Manufacturing surveys in China showed improving confidence and demand. The US jobs report showed that 266,000 jobs were added in November (the 110th consecutive month of job creation), the unemployment rate fell to 3.5%, the labor force participation rate ticked lower to 63.2%, average hourly earnings rose 3.1% from a year earlier, and the total labor force hit a record high of 164.4 million, of which 158.6 million were employed.

Developed market equities were mostly higher in December (see page 8), with the biggest gains in Hong Kong (+3.6%), the S&P 500 (+3%), and the UK (+2.7%), and losses in Australia (-2.4%). US small caps performed in line with large caps, with the Russell 2000 and Russell 1000 both up 2.9% (see page 3). Energy (+6%), IT (+4.5%), and Health Care (+3.6%) were the best performing sectors; Industrials (-0.1%), Real Estate (+1.3%), and Communication Services (+2%) were the worst performing sectors (see page 2). Large cap growth (+3%) outperformed large cap value (+2.8%) in December (see page 3). Emerging market equities moved higher in December (see page 9), with the biggest gains in Argentina (+13.2%), China (+7.9%), and Korea (+7.8%).

In currencies, the USD Index was lower (-1.9%) in December (see page 10). The Norwegian Krone (+5.1%), New Zealand Dollar (+5%), and Australian Dollar (+3.8%) strengthened the most against the USD. Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Brazilian Real (+5.4%), South African Rand (+4.7%) and Russian Ruble (+4.2%), and losses in the Turkish Lira (-3.4%).

The US interest rate curve steepened in December (see page 12). 10 year rates closed the month at 1.92%, up from 1.78% at November month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index moved higher in December (see page 11), with gains in Energy (+9.4%), Agricluture (+4.4%), Precious Metals (+3.7%), Industrial Metals (+2.9%), and Livestock (+1.5%). Within individual commodities, Crude Oil (+11%), Brent Crude (+10.9%), and Coffee (+9.1%) saw the biggest gains, while Natural Gas (-3.7%), Cocoa (-1%), and Live Cattle (-0.1%) saw the biggest losses. Gold was up 3.6% in December.

Contact CurAlea Associates for a Daily Market Review.