In years to come markets may well look back at the month just passed as one of the most pivotal in recent memory, at least that's the assessment of DB's Jim Reid. The US election result just over 3 weeks ago sparked a huge divergence across asset classes and also between developed and emerging markets. In fact you could probably start this performance review from November 8th as assets were generally little changed in the first week and a bit leading into the election. Indeed for the first eight days 30 out of 39 assets had returns in a +/- 1% range and 35 assets in a +/- 2% range (the exceptions being commodities). That falls to 5 and 7 assets respectively for the full month however.
Most memorable of all moves perhaps last month was the significant repricing across global yield curves with yields spiking higher on the prospect of fiscal stimulus under President-elect Trump. Indeed in total return terms US Treasuries were -3% while Spanish Bonds and BTP’s returned -2% and Bunds and Gilts returned -1%. However returns for European assets were boosted by a -4% decline for the Euro. In fact in dollar terms then Bunds (-4%), BTP’s (-5%) and Spanish Bonds (-6%) were a lot weaker. Interestingly Gilts (+1%) outperformed with Sterling bouncing back +2% perhaps reflecting the fact that Brexit concerns became somewhat overshadowed. Meanwhile EM bonds (-8%) had their worst month of 2016 with Latam (-7%) in particular selling off sharply. Understandably then credit markets had a difficult month given the moves for rates. European fins, non-fins and HY returned anywhere from -4% to -5% in dollar terms while US credit markets were down anywhere from -1% to -3% with HY outperforming.
Meanwhile there’s an obvious divergence across equity markets. The S&P 500 returned +4% and had its best month since March while there were also gains for the Shanghai Comp (+3%) and more intriguingly, Russia’s Micex (+4%). It was the banking sector which stood out though with the S&P 500 financials index rallying +14% on the prospect of easing bank regulation.
In Europe equity markets were generally softer with the Stoxx 600 turning in a -3% month in dollar terms, although European banks were flat. The periphery was markedly weaker however with Italy’s FTSE MIB returning -4% (weighed down by rising referendum concerns) and the Spanish IBEX and Portugal General both -8%. Much like bonds, EM equities also struggled. The MSCI EM index was -5% while Brazil’s Bovespa, which has been notably volatile all year, returned -10% and was the weakest of all the asset classes.
The final asset class to mention is commodities.
Oil had been generally muddling along in a relatively small range ahead of the OPEC meeting but the positive outcome news saw prices surge nearly 10% on the final day of the month and so helping to push WTI (+6%) and Brent (+5%) into second and third place respectively. However, other commodities were mixed during the month with Gold (-8%) and Silver (-8%) in particular standing out with the trifecta of a Trump presidency, stronger dollar and rising Fed rate hike expectations clearly weighing. The positive outlier however was Copper (+19%) which, along with other base metals, benefited from higher expectations of a boost to infrastructure spending under a Trump presidency.
A quick update of where things stand in YTD terms now.
In dollar terms the top of the leaderboard still has the Bovespa (+67%) leading the way followed by Russia’s Micex (+42%). WTI Oil (+32%) follows with Copper (+23%) and Silver (+19%) rounding out the top 5. At the other end of the scale the FTSE MIB (-20%) is now languishing in the bottom spot with Wheat (-19%) and Sterling (-15%) also in the bottom 3. European banks have recovered a fair bit from the early year lows but are still -12% in total return terms. The S&P 500 (+10%) has had a solid YTD although the Stoxx 600 (-6%) has clearly struggled. Following last month’s moves DM bond markets are generally in a 0% to +1% range although Gilts (-8%) continue to be haunted by the horror month of October. Credit has had a generally solid year. European indices are +1% to +4% while US indices are +3% to +6%. The standout though in credit is US HY which is +13%.
Source: DB