Download Weekly Market Commentary September 12, 2016

EXPERIENCE THE POWER OF IDEAS AND INSIGHTS THAT SET US APART.
INVESTMENT COMMITTEE MARKET COMMENTARY
SEPTEMBER 12, 2016
www.clearbrookglobal.com
U.S. EQUITIES
U.S. stocks experienced their largest drop since “Brexit”, prompted by comments from Boston Fed President Eric
Rosengren who suggested that the Federal Reserve should resume raising interest rates soon, rather than
waiting and risk missing its timing.
a) Dow Jones -2.15% MTD -1.66%
c) Russell 2000 -2.59% MTD -1.64%
YTD +5.87%
YTD +8.42%
b) S&P 500 -2.36%
MTD -1.95%
YTD +5.71%
Drivers: I) Comments from Federal Reserve Bank of Boston President Eric Rosengren about raising benchmark
interest rates spooked investors last week. Rosengren's comments come less than two weeks ahead of the Federal
Open Market Committee's policy-setting meeting on Sept. 20-21. Rosengren is a voting member of the FOMC, who
has been relatively pro-rate hike.
II) A sharp rise in Wall Street’s fear gauge, the CBOE Volatility Index VIX, surged by 39% to 17.50 last Friday,
highlighting investor worries for the day. The VIX marked its largest one-day jump since June 24, and hit its
highest level since June 28. On the New York Stock Exchange, 19 stocks declined for each one advancing, with
98% of the session’s volume contributing to the selloff.
III) The Institute for Supply Management reported its non-manufacturing index fell to 51.4% last month from
55.5% in July, the weakest showing since February 2010, shortly after the end of the Great Recession. Companies
in the U.S. that offer services, such as health care, retail goods and financial advice, grew in August at the slowest
pace since 2010, a potentially worrisome sign for third-quarter growth unless activity picks up again soon.
IV) The presidential election is making some firms cautious about expanding activity, according to a report from
the 12 Federal Reserve districts released last Wednesday. The Fed’s latest beige book report said that commercial
real estate contacts “in several districts” cited only modest expectations for sales and construction activity
moving forward, “due in part to economic uncertainty surrounding the November elections.”
V) Equity prices in September are lower with Small-Cap, Growth, Consumer Discretionary and Energy leading
equity price performance. The laggards for the month are Mid-Cap and Value Stocks along with Industrials.
Capitalization: Large Caps -1.89% (YTD +5.79%), Mid-Caps -2.13% (YTD +7.70%) and Small Caps -1.64% (YTD
+8.42%). Style: Value -2.12% (YTD +12.90%) and Growth -2.12% (YTD +8.70%). Industry Groups (Leaders): Energy
+1.76% (YTD +17.21%), Telecommunication -1.96% (YTD +16.33%), Utilities -1.53% (YTD +13.74%), Consumer
Staples +0.71% (YTD +12.60%), Consumer Discretionary +2.55% (YTD +10.87%), Materials -2.41% (YTD 10.08%),
Industrials -2.55% (YTD +8.87%), Technology -1.82% (YTD +8.76%), Information Technology -1.81% (YTD
+8.16%), Financial Services -2.07% (YTD +1.95%) and Healthcare -1.68% (YTD +0.54). (Laggards):
EUROPEAN EQUITIES
The MSCI Europe index was lower last week falling -0.99%. European equities were pushed sharply lower last
Friday, experiencing a decline for the week, as a selloff accelerated on the prospect of higher U.S. interest rates.
Drivers: I) ECB President Mario Draghi spoke after the bank’s monetary policy meeting last Thursday in Frankfurt.
He said while there are still risks to the euro-zone economy, the current outlook for the bloc does not warrant a
decision for the central bank to act now. Regardless, the market believes it will not be long before the ECB extends
its asset purchase program, which is scheduled to expire in March 2017.
II) German industrial production dropped 1.5% in July as manufacturing output declined. Economists had
forecast a monthly fall of 0.3%. The sharp fall in industrial production is a poor start to the third quarter. Even if
industrial production data in the summer months is often subject to later revisions, the sharp drop will feed
worries about a further cooling of the German economy.
This report discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or
investment advice. It is for informational purposes only and does not constitute, and is not to be construed as, an offer or solicitation to buy or sell any securities or related financial
instruments. Opinions expressed in this report reflect current opinions of Clearbrook as of the date appearing in this material only. This report is based on information obtained from
sources believed to be reliable, but no independent verification has been made and Clearbrook does not guarantee its accuracy or completeness. Clearbrook does not make any
representations in this material regarding the suitability of any security for a particular investor or the tax exempt nature or taxability of payments made in respect to any security.
Investors are urged to consult with their financial advisors before buying or selling any securities. The information in this report may not be current and Clearbrook has no obligation
to provide any updates or changes.
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INVESTMENT COMMITTEE MARKET COMMENTARY
SEPTEMBER 12, 2015
www.clearbrookglobal.com
III) Performance of European Indexes for the week, month-to-date and year-to-date. The MSCI Europe Index
fell -0.99% for the week (MTD +1.21% YTD +0.33%).
ASIAN EQUITIES
Asian equity markets were primarily higher last week as the Bank of Korea kept its base rate unchanged for a
third straight month on Friday and the latest data from China showed consumer inflation slowed in August. The
Dow Jones Asia Pacific Index was up +1.29% for the week, (MTD +1.50), (YTD +6.14%).
Drivers: I) Japan's economy expanded at a slightly faster pace than initially estimated during the April-June
quarter, indicating growth for a second straight quarter for the first time in more than a year. The nation's gross
domestic product expanded from the previous quarter at an annualized pace of 0.7%, compared with a
preliminary figure of 0.2%, the Cabinet Office reported last Thursday. Slightly improved capital expenditure
figures, higher inventories and stronger public investment contributed to the upward revision.
II) China imported 32.85 million tons of crude oil in August, equivalent to 7.8 million barrels a day, preliminary
data from the General Administration of Customs reported last Thursday. Imports were the highest since
December, when they stood at 33.19 million barrels. They were also 7% higher than the 30.7 million tons of
crude shipped during August last year and up 6% from the 31.07 million tons in July.
III) Performance of Asian Indexes for the week, month-to-date and year-to-date. The Nikkei was higher by
+0.24% (MTD +0.46% YTD -10.86%), the Hang Seng Index rose by +3.58% (MTD +4.88% YTD +9.97%) and the
Shanghai Composite advanced by +0.38% (MTD -0.22% YTD -13.01%).
FIXED INCOME
Treasury prices plunged last week, pushing yields to their highest level since the U.K.’s vote to leave the
European Union, as the market’s interest-rate hike expectations rose following hawkish comments from
Federal Reserve officials.
Performance: I) The 10-year Treasury was higher last week ending at 1.674% up from 1.606%. The 30-year
yield rose last week rising from 2.280% to 2.397%.
II) Performance for the week, month-to-date and year-to-date. Barclays US Aggregate Bond was down -0.38%
last week, MTD -0.53% and YTD +5.30%. The Barclays US MBS TR fell by -0.01% last week, MTD -0.06% and
YTD +3.37%. The Barclay’s US Corporate HY Index was down by -0.04%, MTD +0.04% and YTD +14.55%.
COMMODITIES
The DJ Commodity Index was higher last week by +1.41% advancing from 255.91 to 259.53 and is up month to
date +1.73% (YTD +7.37%) as EIA data show U.S. crude supplies down 14.5 million barrels last week.
Performance: I) The price of oil closed lower on Friday, giving back much of the rally they saw a day earlier ignited
by a surprise drop in U.S. crude inventories. For the week oil up higher by +3.41% from $44.20 to $45.71 per barrel
(MTD +2.26% YTD +12.28%).
II) The ICE USD Index, a gauge of the greenback’s movement against six other major currencies, was negative
falling -0.55% from 95.88 to 95.35 for the week (MTD -0.67% YTD -3.38%). The USD rose last Friday against most
of its rivals but remained lower for the week, after Boston Federal Reserve President Eric Rosengren said a
“reasonable case can be made” for raising interest rates. For the week the Yen strengthened rising from ¥103.94 to
¥102.70 and the Euro rose from 1.1155 to 1.1233 against the USD.
III) Gold suffered a third-straight decline Friday, but salvaged a slim weekly gain as traders looked to a cadre of
Federal Reserve speakers for clues on the near-term direction of interest rates. For the week gold higher by
+0.22% rising from $1328.8 to $1331.8 (MTD +1.56% YTD 25.46%).
This report discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or
investment advice. It is for informational purposes only and does not constitute, and is not to be construed as, an offer or solicitation to buy or sell any securities or related financial
instruments. Opinions expressed in this report reflect current opinions of Clearbrook as of the date appearing in this material only. This report is based on information obtained from
sources believed to be reliable, but no independent verification has been made and Clearbrook does not guarantee its accuracy or completeness. Clearbrook does not make any
representations in this material regarding the suitability of any security for a particular investor or the tax exempt nature or taxability of payments made in respect to any security.
Investors are urged to consult with their financial advisors before buying or selling any securities. The information in this report may not be current and Clearbrook has no obligation
to provide any updates or changes.
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INVESTMENT COMMITTEE MARKET COMMENTARY
SEPTEMBER 12, 2015
www.clearbrookglobal.com
HEDGE FUNDS
Hedge funds returns in September are mixed with the core strategies Equity Hedge, Event Driven, Macro and
Relative Value are positive while Distressed is in negative territory.
Performance:
I) The HFRX Global Hedge Fund Index is higher at +0.57% MTD and +1.35% YTD.
II) Equity Hedge has risen +1.12% MTD and has fallen -1.08% YTD.
III) Event Driven is up MTD +0.53% and is up YTD +7.68%.
IV) Distressed Debt is lower at -0.02% MTD and is positive YTD +13.28%
V) Macro/CTA has risen by +0.31% MTD and is down -0.71% YTD.
VI) Relative Value Arbitrage is positive at +0.22% and is down -0.52% YTD.
ECONOMIC DATA WATCH AND MARKET OUTLOOK
As we head into next week, investors will be anxious to see if global interest rates which jumped last Friday to
their highest level since the U.K.’s vote to leave the European Union, prompted by hawkish comments from
Federal Reserve officials and policy inaction by the European Central Bank will continue to rise. The selling pushed
the benchmark 10-year Treasury note to 1.675%, its highest level since June 23, the day of the Brexit vote, while
the 10-year Germany bund yield turned positive for the first time since the Brexit vote.
The sharp move vindicated market strategists that have been warning investors not to get complacent during
the recent global bond rally that inflated prices to their most expensive levels in history, pushing global yields to
all-time lows, in many cases in negative territory. The global bond meltdown over the past two trading sessions
supports the long-held conviction that global interest rates have bottomed and that the post-U.K. vote
referendum was the final straw.
Strong foreign demand for the relative value of U.S. yields (estimated to be 35%) motivated by investors fleeing
ultralow interest rates in Europe and Japan has been cited as one of the main reasons why Treasury yields dropped
in June to all-time low levels, even if unsupported by economic fundamentals. At the same time, high foreign
ownership means that bond-selling trends initiated abroad can push U.S. interest rates higher, in the event that
interest rates rise in other parts of the world.
On the economic data front, US retail sales data (estimated to rise from -0.1% to 0.0%) will be released on Friday
September 15th at 08.30 EST. After two strong reports for May and June, the July retail sales data was
disappointing with a miss on all three key metrics. The Fed has seen evidence of an underlying slowdown in auto
sales from unsustainable levels. To be confident in raising interest rates the FOMC will be looking for a solid overall
tone in consumer spending and evidence that any pull back in the rate of auto sales is being offset by stronger
spending elsewhere.
Federal Reserve Governor Brainard is due to speak on the economy and monetary policy on Monday September
12th at 1.15 EST. The speech from Brainard is a late addition to the Federal Reserve calendar and there will be a
high degree of speculation over the content of the speech. The timing is potentially very important as it is one of
the last possible occasions for public Fed commentary before the silent period ahead of the FOMC meeting the
following week. The scheduling of a speech at this juncture will inevitably lead to expectations of an important
message to markets.
The US consumer prices data (projected to increase from 0.0% to 0.1%) will be released on Friday September
16th at 08.30 EST. The Federal Reserve has a dual mandate of maximum employment and price stability. The
latest inflation data will, therefore, be watched very closely, especially as it is the last major data release ahead
of the Fed meeting. Last year, for August, there was a decline in headline consumer prices of 0.1% and a small 0.1%
gain for core prices.
This report discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or
investment advice. It is for informational purposes only and does not constitute, and is not to be construed as, an offer or solicitation to buy or sell any securities or related financial
instruments. Opinions expressed in this report reflect current opinions of Clearbrook as of the date appearing in this material only. This report is based on information obtained from
sources believed to be reliable, but no independent verification has been made and Clearbrook does not guarantee its accuracy or completeness. Clearbrook does not make any
representations in this material regarding the suitability of any security for a particular investor or the tax exempt nature or taxability of payments made in respect to any security.
Investors are urged to consult with their financial advisors before buying or selling any securities. The information in this report may not be current and Clearbrook has no obligation
to provide any updates or changes.
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