CTA Trading Programs – May 2018

Over the month of May the financial markets were once again plagued by volatility. The factors behind the reactionary market movements were largely due to heightened political risk. Global uncertainty remains as markets adapt to the US administration’s approach to international trade. Furthermore, the political directions leading towards global relationships with North Korea and Iran are still speculative. In Europe the rise of Italy’s new populist government was another factor leading to market concerns. As a consequence, this risk-off sentiment paved the path for a significant rise in the value of the US dollar. Therefore the majority of our CTA trading programs generated moderate gains under a controlled risk environment.

In light of this situation the economic backdrop was still surprisingly supportive. Driven by a series of stable corporate earnings, the ongoing strength behind the demand pushing global growth was evident. Moreover, the inflationary concerns from the previous month dissipated slowly allowing central banks to normalise interest rates gradually. This created a scenario of economic stability despite the fact that potential political risks lay ahead. Therefore when monitoring the patterns of the global equity markets, valuations grew despite the intra-month swings. These sudden reversals in price patterns had a negative impact on the trending strategies of the CTA trading programs.

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.