CTA Trading Allocations – June 2018
The pace of global economic expansion remains on a path of expansion however developed markets are entering maturing cycles. As a consequence, the risk of a demand-driven slowdown is a growing factor in estimating future economic output. What has become more evident during the course of the year is the division in global growth rates. Global expansion is now less synchronised between the continents, with the pace of the overall activity extending beyond its peak. Financial markets are impacted by moderating growth under tightening credit controls. Therefore in seeking returns, CTA trade allocations will shift towards broader diversification. Tightening monetary policy will lead towards slower liquidity growth. The result of this reduced market liquidity can lead to an inadvertent increase in volatility in the financial markets.
In response to global economies progressing across the business cycle, broader diversification can reduce the unwanted volatility. Making adjustments to a portfolio with CTA trade allocations will benefit in seeking the medium term trends. Additionally, reducing exposure from risker assets can stabilize a portfolio as the economic cycle continues to mature. Market data along with financial releases suggests that we are in the midst of a transitioning economic environment. This scenario unfortunately is supported by a less accommodating monetary policy stance. Therefore smaller cyclical portfolio adjustments are needed to capture future marker trends.
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.