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.
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