June 16, 2023

Weekly Update
Managing Director

US CPI y/y falls to 4.0% and US Federal funds rate held at 5.25%

Weekly Update | June 16, 2023

It has been another busy week in the Frame Funds offices, with strategy execution the focus. 

Let’s hop straight into five of the biggest developments this week. 

    1.    US Consumer Price Index y/y falls to 4.0% 

Inflation in the US looks to be finally thawing. This reading was much lower than the previous reading of 4.9%, and below markets expectations of 4.1%. This marks the lowest annual inflation figure in over two years. The data was largely influenced by a slump in housing prices. The release indicated that the prevailing high-interest rates were beginning to slow rampant inflation. 

    2.    UK GDP grew by 0.2% in April 

After a -0.3% contraction in March, the UK GDP rebounded with 0.2% growth in April, in line with market expectations. The resurgence was buoyed by 0.3% growth in the service sector which had shrunk by -0.5% in March. The data continues to reinforce that the British economy still has a narrow runway for a soft landing.  

    3.   US Federal funds rate held at 5.25% 

The US Federal Reserve maintained interest rates at 5.25%, in line with market expectations. Principally influenced by the stabilization of inflation data, the Fed paused its rate hiking regime, that has seen ten conservative raises in one of the most intense tightening cycles in history. All eyes now focus on inflation data, as the Fed has stated that they will focus on incoming data to dictate further action. 

    4.    US unemployment claims remain at 262K 

The increase in unemployment claims from last month persisted according to data released Thursday by the Department of Labor. Market consensus was at 246K. The weakness in the labor market further demonstrates that the effect of interest rate increases is slowly working its way through the economy. 

    5.    ECB raised interest rates by 25 basis points 

The ECB continued its monetary policy tightening as they raised rates to 3%, a bold move in light of economic fragility in the Eurozone. Despite the general easing of inflationary pressure across the block, the central bank continued with its tightening stance as they focus on bringing inflation back to its 2% target.  

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. 

Oats, Natural gas and soybean oil have extended gains after stellar performances last week. Across the board we have seen a risk-on move, as risk currencies and equities move higher. Some solid trends have formed in Cocoa and Lean Hogs which our strategies have captured. 

Here is the week’s heatmap for the largest companies in the ASX. 

After a poor showing last week, the ASX has rebounded well. Financials and Materials were the outperformers, however at an index level, the market has been relatively muted due to the big drop in CSL. Materials have done the most of the heavy lifting, thanks to a jump in the iron ore price.

*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.