CTA Program Strategies – April 2018

Fears over protectionist US trading policies drove global equities lower last month. April saw a continuation in this pattern as market volatility remained elevated. A turbulent month contributed to an extension of risk aversion in equity markets. Consequently, fixed income assets were the beneficiary of the investor flight to safety. As for CTA program strategies, the risk adverse market sentiment created challenges in seeking trading opportunities. Furthermore, with the markets reluctance to maintain trending scenarios gains were quickly reversed.

In light of this situation the inflationary pressures became the market focus. During the slow recovery from the financial crisis inflation has been below historical averages. However, market participants are now focusing on this situation intently. Investor and central banks are monitoring for economic data that can lead to unwanted inflationary pressures. A sharp rise in employment or economic output can results in a jump higher in long term interest rates. Additionally, extended periods of growing corporate earnings can contribute to rising prices. This creates hesitation amongst market participants with unclear views on the execution of CTA program strategies.

A Macro-economic View

In our opinion the macro-economic outlook remains positive despite certain setbacks. Market data is supporting a view of increased economic growth. This view is based on the current economic recovery with data still pointing towards growth. In general, economic surveys remain at elevated levels despite the recent deterioration. The trend in economic global growth has retraced from decade highs, but this has not signalled a reversal in the economic cycle. Furthermore, with the rebalancing in growth from China progressing steadily any slowdown appears manageable. The recovery exhibited in most of the global economies, has been primarily driven by domestic demand.

Turbulence Ahead?

Clouds are looming over the global investment landscape. The Federal Reserve is beginning to hold a more hawkish stance with global economic growth turning lower. In the US the trade policy favours the side of protectionism and China responded in kind. As a consequence of the market turbulence CTA program strategies seeking broader market trends have suffered. An additional factor contributing to shifting short term trends was market liquidity getting tighter. However, the manner in which liquidity is tightening is both steady and controlled. Therefore on balance the market turbulence is unlikely to turn into a full blown storm.