CTA Trading Strategies – October 2017
The big monetary policy event of the month was the European Central Bank’s October meeting. It was during this meeting that the ECB announced an extension of their quantitative easing programme. Consequently, the market responded to this news as an acknowledgement of the solid growth apparent in the region. However, the tone behind the communication kept the door open for a possible further extension. The announcement was in line with consensus expectations for the ECB.
Across the Atlantic the strong data out of the US in October continued. Overall, these past few years of solid US macroeconomic growth mean companies are able to deliver quarter after quarter of positive earnings results. This was despite a significant dip in the September NFP numbers. Since it was the effects of Hurricanes Irma and Harvey that attributed to the dip in growth, we expect to see a bounce-back shortly. As a consequence, our trading signals reflected this shifting data to reduce their impact on our CTA trading strategies.
Political Risks in Europe
Europe has suffered heavily from the cost of political uncertainty recently. It began with the crisis in Greece that spread to the periphery and became a wider sovereign debt crisis. Despite the European financial system making a recovery, there has been a rise of populist, anti-austerity and anti-EU political parties. This movement though has hindered the performance of European markets in recent years. The major political obstacles that had held back European risk assets have now been overcome.
However, the events in Austria, Spain and Italy highlight the ongoing trend towards populist, nationalist and now regionalist sentiment. These political risks continue to simmer under the surface impacting markets and our CTA trading strategies. On the positive side however, the Eurozone economy continues to perform strongly.
Currencies Pushed by Global Tensions
Pressured lower by geopolitical tensions, the Dollar was pushed to its weakest level since early 2015. However, the shifting market sentiment led to the currency reversing its course. By the end of the month the Dollar rose nearly 3% off the lows. Increased market expectation of a FED rate hike in December, was a primary factor behind this appreciation. The second factor elevating the Dollar came from a proposed tax reform in the US. Elsewhere in the G10, the British pound rose as the BoE shifted to a hawkish tone on interest rates.
Additionally, negotiations between the European Union and the UK partially reduced the probability of a hard Brexit. In Asia the tensions surrounding the North Korea missile activity spurred the Japanese yen. Investors drove the Yen higher as they sought safe-haven currencies. However, the Fed’s statement coupled with Japanese government decision to call a snap election, resulted in a reversal of those gains.