Best August performance in years for many of the main equity indices. An impressive run up led by the big technology companies and by continuous support of central banks. In his Jackson HoleĀ“s speech, Jerome Powell delivered what was expected and market bought the idea of more inflation ahead. We will see if they are able to deliver this time. Equity markets believe it will happen, while bond markets are not so sure. There will be a lot of arguing in the next several months regarding this. We expect markets to go from āreflationā to ādeflationā mode in a somehow volatile way, or said differently, uncertainty regarding the scenario will remain .
Meanwhile, the Street is not feeling as upbeat as financial markets and activity data is showing that the logical rebound after the confinement is starting to fade. USD kept depreciating while cyclical currencies kept rallying. Everything seems to be the same trade.
Our portfolio has been rotating towards a defensive stance given the impressive rally of cyclical currencies and the continuous depreciation of the USD. Thus, we were down in the month (more than recovered during the first days of September) and the portfolio is exhibiting negative correlation to equities now.
We keep our shorts in AUD and CHF, while USD longs remain. The other currencies have provided a lot of rotation, which keeps being the most important factor within the portfolio. Another month where closed trades contributed close to 6% to the portfolio. All this means that the potential return is actually very good. Some pairs are getting closer to extreme levels, so a certain pull back will be very profitable.
We expect the volatility environment to persist and therefore rotation will remain high.
Below we show you the October cards of all our funds.
As always we remind you that we are at your disposal for anything you may need.
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