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<\/a>The broad-based market upswing in the first half of July has benefitted risk assets globally.
\nThat follows the release of better than expected economic data in the US and China,
\nsuggesting that fears over the strength of the global recovery have been exaggerated.
\nMeanwhile, the clearer political picture in the UK, following the appointment of Theresa
\nMay as the new Prime Minister, and the victory of Abe\u2019s ruling coalition in the July 10th
\nupper house election in Japan also contributed to boost investors\u2019 confidence. <\/p>\n
Equity markets bounced back markedly in Europe and Japan as a result. In addition, value
\nstocks outperformed defensive segments such as quality\/ low beta stocks. Credit markets
\nalso rallied, with high yield spreads tightening significantly both in Europe and in the US.
\nMeanwhile, sovereign bond yields moved higher due to the improving macro picture. <\/p>\n
In the hedge fund space, the rising tide lifted most boats. With the exception of CTAs which
\nare defensively positioned, all other hedge fund strategies tracked in the Lyxor Hedge Fund
\nIndex were in the black last week. Directional strategies, such as Special Situations within
\nEvent-Driven and long biased L\/S Equity outperformed. The hedge fund strategies that
\nperformed best last week were those that suffered the most in June when markets were in
\nrisk aversion mode.<\/p>\n
Going forward, the environment remains clouded by many uncertainties which prevent us
\nfrom adding risk to portfolios. We believe the US earnings season is likely to bring some
\npositive surprises, but on the other hand, the continued depreciation of the Chinese
\nRenminbi is a source of risk. The FOMC meeting on July 26-27th is likely to take notice of
\nthe strong improvements in the US labor market. We do not expect a rate hike considering
\nthe lack of evidence on the impact of Brexit on the US economy. However, we would not be
\nsurprised to see a moderately hawkish Fed statement in order to guide very dovish market
\nexpectations. Our defensive stance translates into a continued preference for hedge fund
\nstrategies with moderate market directionality, such as Merger Arbitrage and L\/S Equity
\nvariable bias, among others.<\/p>\n