Market euphoria pushes high beta FX higher – Month in Review: December 2020
Macroeconomic Environment Review
During the final weeks of 2020, investors were focused on the positive news coming from the pandemic’s front. Headlines that vaccinations have started taking place around the world are spreading optimism and, as a result of that, the global financial markets are looking upwards.
Investors are betting that as more and more people get the vaccine, the world will return to its “normal mode” and the economy will pick up the pace once more. As such, the bias among market participants is bullish: the name of the game for the new year will be “reflation” as economists expect a pickup in demand as people will return to their usual lives and consumer spending will increase again.
This positive sentiment takes the higher beta instruments to higher levels and it suggests that further gains for the likes of the Euro, Sterling, and the antipodeans are likely, and in our view, that should be the case. We attribute these expectations partially to the historic vulnerability of the US Dollar during times of global reflation, which should be a boon for the higher beta G10s. Indeed, the Dollar remained depressed during the final weeks of the year and it remains vulnerable to fresh losses, especially when one takes into consideration the domestic economy’s current account deficit.
The Euro is among the main beneficiaries of this trend and despite the oversold state of the Dollar, we have little choice but to look upwards for the Single currency. However, the same cannot be said for Sterling – at least not right now. The British currency gained by the weakening Dollar, but the toll of the now done-and-dusted Brexit will start showing its effects, suggesting a volatile outlook in the medium term. Albeit, one positive for Sterling is that Brexit is now old news, and the uncertainty that clouded its outlook is gone. So, given that financial markets are always forward-looking, investors will be eager to see what the future holds for European Union’s “lost child”.
Portfolio & Program Review
Across the spectrum of our benchmark indices, our performance during December was very rewarding. As a comparison, AENAON Syncro Currencies returned 4.65% last month, versus a 3.84% return for the US S&P 500 equities index, a 3.39% gain for the BarclayHedge Fund Index, a 2.45% advance for the Barclay CTA Index, a 0.38% gain for the Currency Traders Index and a 2.67% gain for the Systematic Traders Index.
At the close of the year, despite a challenging macroeconomic and geopolitical environment, our flagship program was able to post a positive yearly return that meets our investment goals. You can always review AENAON Syncro Currencies’ updated factsheet at our Fundpeak link, with monthly performance updates and statistics since inception.
Authored by Konstantinos Anthis, Chief Investment Officer