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Recently released economic data in the US was somewhat below expectations dashing
expectations of an imminent Fed rate hike. The US dollar weakened during the period
under review and this has supported CTAs while hurting Macro managers who are
respectively short and long USD against major currencies.
Equities also contributed to the
positive performance of CTAs last week, in particular the long US equities stance.
In our previous report we commented on the respective stance of Macro and CTA
managers on the US currency and signaled we were more comfortable with the bearish
USD stance of CTAs. We maintain that view, despite the latest comments from Boston Fed
President Rosengren, signaling that “gradual tightening is likely to be appropriate”.
This
comment from a voting FOMC member provoked some market turbulence at the end of last
week, pushing bond yields higher while equities and commodities edged lower. The Fed
willingness to test the market may provoke higher volatility across asset classes in the
short term. But the Fed is data dependent.
This week we should have greater clarity on the
strength of the US and global economy. Major economies will release industrial production
data for August as well as consumer price numbers. The US consumer confidence survey
by the University of Michigan will also be closely watched. We still think that the Fed is
unlikely to hike at the September 21st FOMC meeting.
The returns of CTAs and Macro managers will thus be tied in the short term to macro
developments, in particular in the US. Beyond these two strategies, Event Driven and L/S
Equity strategies experienced positive developments last week. Both were up, 0.2% and
0.4% respectively, extending the positive returns achieved in Q3 to date (3.4% and 2.2%
respectively). On the Event Driven side, investments in healthcare, communications,
financials and technology were particularly profitable.
Two deals in merger arbitrage books
contributed significantly: Softbank completed its $30bn acquisition of ARM Holdings and
Johnson Controls completed its merger with Tyco International.
Finally, on the L/S Equity
side, long positions on consumer cyclical and financial stocks were the main contributors.
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