CTA Trade Signals – July Updates

As we head into the depths of the summer period, market volatility lessens as expected without any strong market releases or data to push it around. During the month the main central banks on each continent kept rates on hold. However we should not anticipate this stance from the FED, ECB and BOJ to continue through to the end of the year. Consequently the message signaled by the central banks did benefit the global equity and bond market rally. The political risks that were so evident impacting our CTA trade signals subsided to a welcomed summer break.

On both sides of the Atlantic corporate equities earning were off to a good start since the close of the second quarter. These earnings growth results have continued to spur on market growth, translating across most sectors of the financial markets. Consequently, these clearly defined market pattern improve the success rate in building CTA trade signals for trending strategies.

Market Expansion Theme

In the developed markets the theme of market expansion appears to be holding. The macro story in Europe is continuing on the path of positive momentum. In the region the manufacturing indices reported sustained growth, with German business data level reaching all-time highs. As a result the Euro traded broadly higher, appreciating the most against the Dollar as opposed to the other currency majors. The pattern of a weakening Dollar was not a result of slowing domestic economic growth in the US. On the contrary, the theme of expansion in US manufacturing was buoyed by a strong jobs market. The latest data release on US employment numbers confirmed a healthy domestic labour market.

Economic Growth Remains Firm

The current global financial environment of steady economic growth aligned to low levels of inflation, benefits the CTA trade signal. Declining oil prices and lower valuations on commodity prices in general dampen inflation expectations. Therefore, these muted inflationary pressures reduce the market concerns on growth overheating. Overall the risk of recession remains low globally, aided by central bank monetary policy supporting growth. In the Eurozone the economic cycle in on an upswing, however the climate in the US appears more mixed. The Chinese economy remains broadly steady despite the fact that the most of the upside has already occurred. This is evident from economic data revealing declining industrial activity and a peaking housing market.