The US Dollar stares into the abyss – Month in Review: July 2020
Macroeconomic Environment Review
July was another positive month for the global money markets in general as the major central banks continue their effort to stimulate their domestic economies. The S&P 500 extended its recent gains to return to positive territory for the year while fixed income assets also rallied, boosted by the falling Treasury yields – with the benchmark 10-year yield hitting an all-time low of 0.52% at the end of July.
Shifting our focus to the currency markets, not much has changed from a monetary policy perspective since our previous monthly commentary, with the US Federal Reserve keeping interest rates unchanged but reiterating their bearish tone and their commitment to do what’s necessary to support the economy.
This has driven the US Dollar to fresh lows against its peers with all of the other major currencies scoring gains. During July, the Euro was up by approximately 5% just shy of the 1.18 mark, Sterling climbed by around 5.5% to almost reach 1.31 and the Yen ended the month around 2% stronger at 106.00 but having rallied as much as 3.5% during the course of the month. The antipodeans were also boosted by around 3% on average but the Canadian Loonie lagged, at only 1.3% higher.
For the month ahead, while I don’t foresee a material change in the fundamental bias or technical outlook of the financial instruments in our universe, I should mention that there are indications of exhaustion in the current rallies. Granted, the Dollar should remain under pressure while the effects of CoVid-19 are still taking their toll on the domestic economy and the number of new cases doesn’t seem to subside. However, the gains on the rest of the major currencies should start weighing down on their respective countries’ Trade Balances and this could present a headwind against any further – significant – upside.
From a tactical perspective, this would suggest that Momentum will be likely replaced by Mean Reversal and Breakout as the go-to factors to seek alpha over the coming few weeks, which means that traditional trend-following funds may struggle while alternative asset managers should have an easier time navigating these waters.
Portfolio & Programs’ Review
During the month of July 2020, AENAON Syncro Algo generated a Total Return of +8.27% net of fees. Consequently, our year-to-date Total Return for 2020 stands at +18.45% net of fees.
Across the spectrum of our benchmark indices, our performance during July was exceptionally strong. As a comparison, AENAON Syncro Algo returned +8.27% last month, versus a +5.51% return for the US S&P500 equities index, a +2.78% gain for the Barclay Hedge Fund Index, a +1.32% gain for the Barclay CTA Index, a +1.37% gain for the Currency Traders Index and a 1.41% gain for the Systematic Traders Index.
Throughout the present year, AENAON Syncro Algo remains consistently in positive territory. Furthermore, last month’s strong gains have allowed us to fully recover from the mild drawdown observed during April-May and achieve a fresh absolute peak since the inception of the program. Finally, our end of year target remains in line with our expectations to return a strong risk-adjusted performance for our investors during 2020.
You can always review AENAON Syncro Algo’s updated fact sheet at our Fundpeak link, with monthly performance updates and statistics since inception.