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.
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