CTA trade strategies

CTA Trade Strategies, March 2017

CTA Trade Strategies

The major news that had been driving the markets in March began with the rate hike implemented by the FED to tighten monetary policy further, with inflation and unemployment move closer to its targets. Underlining the strength of the domestic economy this benefited our CTA trade strategies in generating positive signals. Combined with surging equity markets have added to already elevated consumer confidence. In Europe, data from the Eurozone continued to indicate levels of growth close the projected maximum rate. However political uncertainty stemming from Brexit discussions, unfortunately overshadowed the data.

Bullish Run in Equities

Market optimism pushed US equities higher. In part this emerged from investor reacting to news on the potential financial sector deregulation announced by Trump administration. The prospects of a potential unveil of substantial corporate tax announcements coupled with rebounding corporate earnings reignited bullish sentiment in risky assets. This optimism benefited the broader financial markets from; global equities to precious metals, energies and commodities. Unfortunately, the whipsawed currency markets did not trend.

Narrow G-10 Currency Ranges

For the returns generated by the CTA trade signals this market sentiment translated poorly to the systematic, trend-following views as the market responds swiftly to the news. Volatility was present but without a clear directional bias. During March the narrow market bands challenged the trading strategies. The signals which sought trending themes were at a disadvantage. Whilst the pragmatic, discretionary strategies were able to lock in returns. Consequently the strategies were able to lock in gains by generating short term signals before the markets extended to different inputs.

Strength behind Diversified Markets

The situation for medium term trend seekers in the diversified markets fared better. By holding on to slight gains the signals achieved positive returns, due to key markets exhibiting trends. Overall exposure for the different CTA trade strategies was much higher than typically experienced during a month. The fact that many positions were closed and reversed which increased the trading volumes. However, the unclear direction meant that this increased trading volume tended to drag performance lower.

Not all Risk Assets are Equal

In general, investors who were bias to extend positions in riskier assets. However in the interest rate markets the returns expectantly failed to impress as signal failed to generate any substantial returns. Additionally, from our advisory services we recommended to clients that in the longer term buying trends are still prevalent in the broader market as the case for holding and executing buying strategies in a range of financial markets was supported by risk adjusted gains.