A fairly heavy load of economic data was released last week. On balance they were positive in DM but remained on the soft side in EM. The divergence between DM vs. EM continued to widen. This kept a strong downward pressure on global trade related assets, starting with commodities. The energy space continued to bleed with concerns rapidly building up in US credit markets and broad weakness in breakevens. 

Philippe Ferreira

Head of Research - Managed Account Platform

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A fairly heavy load of economic data was released last week. On balance they were positive in DM but remained on the soft side in EM. The divergence between DM vs. EM continued to widen. This kept a strong downward pressure on global trade related assets, starting with commodities. The energy space continued to bleed with concerns rapidly building up in US credit markets and broad weakness in breakevens. 

In contrast, it supported reflation zones which are benefiting from lower oil prices, weaker currency and acceptable yields. The earning season is well advanced. Europe and Japan have delivered healthy results, unlike the US which is still digesting a poor Q2 EPS season. Of note, the Greek exchange has reopened after 5 weeks of closure and the MPC is delaying its rate cycle.

The abating systemic risks following the Greek deal and the stabilization of the Chinese stock market hasn't translated into a new phase of risk appetite. Instead the focus has shifted on the structural implications from the Chinese transition, from the Fed and from the oil collapse. Markets have revised their global growth and global trade anticipations back to par.

That environment is favourable for hedge funds, which are outperforming traditional assets. In particular, macro traders have taken the lead last week. Both CTAs and Global Macro managers were well positioned to benefit from the conservative repricing of global growth (in rates and commodities), while keeping a tilt on reflation zones, in Europe especially. L/S Equity funds also performed well. European managers enjoyed a positive beta contribution. In the US, falling correlations and better fundamental pricing allowed managers to generate strong alpha. The Event Driven space remained in positive territories. Special Situation funds outperformed Merger Arbitrage managers. Disappointing US results in Media, Healthcare and Consumer Discretionary reverberated in deal spreads.

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