Weekly Update | June 23, 2023
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It has been another busy week in the Frame Funds offices, with market research as the focus.
Let’s hop straight into five of the biggest developments this week.
1. UK CPI y/y persisted at 8.7%
The annual inflation benchmark in the UK remained alarmingly stubborn in May, above market expectations of 8.4%. Inflation remained at the same level as was seen in April. The data shocked most participants as it included a significant plunge in fuel prices. Increases in services inflation led to the figure higher.
2. US unemployment claims persisted at 264K
Continued weakness in the labour market continues to appear, as the recent interest rate increases begin to have an effect. Save for a spike in mid-May, the data came in as high as the upward-revised figure for last week. This marked the highest unemployment claims since January of last year, beating market forecasts of 261K.
3. Bank of England raised interest rates by 50 basis points
The UK central bank took another step against rampant inflation by raising rates to 5%. The outsized hike came as a shock to markets that had priced in a raise to 4.75%. Battling the worst inflation headache among major economies, the BoE kicked the trend of other central banks of holding rates and stated that nothing was off the table in their concerted effort to meet their 2% inflation target.
4. Switzerland raised interest rates to 1.75%
The SNB further escalated its monetary policy tightening by 25 basis points to enforce price stability in light of a recent upsurge in inflationary pressure. The SNB seeks to push inflation below 2% from the current 2.2% to preserve Switzerland’s safe haven status. Globally Switzerland has one of the lowest levels of inflation.
5. Fed chair Powell’s hawkish testimony
The chair of the Federal Reserve, Jerome Powell adopted a surprisingly hawkish tone in the Friday testimony before the Senate Committee on Banking, Housing and Urban Affairs. This was in contrast to the market perception that the FED would ease on rates hikes after one of the most aggressive tightening regimes in recent history. He stated that the majority of the committee believe there will be an additional two rate rises this year.
Below shows the performance of a range of futures markets we track. Some of these are included within the universe of our multi-strategy hedge fund.
A huge week for the soybean complex with dry weather conditions expected to persist in the US. Wheat and Corn also experienced aggressive buying over the week. Month to date, you can see a huge move up in Wheat, Oats, and Soybean oil. Crude oil, heating oil, and gasoline reversed course from last week, as traders focused on a slowdown in global demand.
Here is the week’s heatmap for the largest companies in the ASX.
The ASX has had a wild week. The market aggressively rose after the RBA hinted at a pause in rate hikes later this year. Financials have enjoyed a solid move higher on this news. Across the board, miners have suffered. Yesterday we had a bruising day, where tech and the broad market were sold off around -1.7%.
*Historically there is a direct correlation between the number of constituents experiencing both short and long-term trends and the performance of the strategy.
Please reach out if you’d like to find out more about how our quantitative approach captures the price action covered above, or if you would like to receive these updates directly to your inbox, please email admin@framefunds.com.au.