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

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.

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