CTA Multi Strategies – July 2018

The US economy has clearly been one of the stellar performers of the global economies. In the past seven months of 2018, US economic growth has delivered strong valuations. This is despite the appearance of different market challenges. Cyclical growth pattern combined with a maturing business cycle, contributed to sideways movements of the financial markets. However, there is evidently short term support for the US economy. Tax cuts along with other fiscal policy measures have been effective. Consequently the benefits from the supportive measures to the economy have led to growth. Unemployment is now at lows that were last seen when technology stocks were trading at their peak in the 1990s. The significance of this is that we need to go back another twenty years when unemployment was at these lows.

This is the good news though. The downside to the recent fiscal stimulus is that it delays economic weaknesses for the future. A resilient economy will build up inflationary pressures and trade imbalances. Therefore, short term interest rates and the US dollar will be on the rise. This is certainly a key consideration for investors. The financial markets are exhibiting increased volatility under range bound market scenarios. Programs trading CTA multi strategies must adjust to these themes in order to capture the future market trends.

Growth, but with uncertainty

Markets are pricing in with increased probability, Fed increasing short-term interest rates further. This action will help alleviate increasing pressures of a correction following periods of raising long term treasury yields. Consequently for next the Fed meeting scheduled next month, the consensus stands for a twenty five percent basis raise. Fuelled by strong US economic growth there are potentially more rate hikes to follow. However, with this growth comes greater uncertainty.

Strong US economic growth tends to have a multiplier effect on global markets. It is not uncommon for other major economies to experience growth on the back of continuing US expansion. The possible introduction of further trading tariffs has not dampened the appetite for economic growth. Global investors are seeking investment currency-hedged yields to stabilise investment portfolios. A shift towards perceived ‘safe haven’ assets can see a growth in demand for diversified programs. For example, programs that allocate to CTA multi strategies have market diversification benefits.