Weekly Update | June 30, 2023
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It has been another busy week in the Frame Funds offices, with strategy reviews and optimisation the focus.
Let’s hop straight into five of the biggest developments this week.
1. Canadian trimmed CPI y/y falls to 3.8%
Inflation in Canada showed major signs of thawing after a slump of the annual benchmark for the month of May. Inflationary pressure seems to be easing much faster than expected after the sharp fall from 4.4% reported in April and below the 3.9% market projection. This marks the lowest inflation reading since June 2021, thereby giving greater flexibility around the BOC’s current tightening regime.
2. Australian CPI y/y fell to 5.6%
According to data released on Wednesday, the consecutive interest rate hikes are having a substantial kick on inflation in Australia. The 5.6% figure reported for the month of May was a considerable drop from the previous 6.8%, as well as the market expectation of 6.1%, posting the lowest release since July 2022. Stabilization in fuel prices is the biggest contributor to the inflation differential.
3. German Preliminary CPI m/m rose 0.3%
Inflation in Germany rebounded to 0.3% in the month of July after the deflationary figure of -0.1% last month. This surpassed the market expectation of 0.2%. Services inflation rose significantly, which offset the overall slump in fuel prices.
4. US final GDP q/q grew by 2%
The US economy expanded by 2% in the first quarter of 2023. This was an acceleration from last month’s upwardly revised figure of 1.3%. The 2% reading also beat market expectations of 1.4%. The surge in consumer spending and overall rise in exports contributed significantly to growth.
5. US unemployment claims fell to 239K
The US labour market steadied last week, as unemployment claims fell from 265k to 239k. This was the first drop in the number of unemployment claims in 4 weeks. The data continues to demonstrate that the US labour market continues to be resilient despite all the recent interest rate increases.
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.
Corn, wheat and the soybean complex have been on a roller coaster over the last few weeks. Last week’s performance was no different, as weather forecasts out of the US have been wetter than traders thought a few weeks ago. The aggressive buying in these commodities seen a few weeks ago has now been completely undone. In the fixed income space, it has been interesting to see US fixed income have continued to drift lower, with 2-year government bonds dribbling back to lows.
Here is the week’s heatmap for the largest companies in the ASX.
A tough week for the ASX with most sectors in the red for the week. Financials had a mixed week, with WBC and ANZ the outperformers, CBA and MQG dragged. The materials and energy sector continued to drag on the index, while health care and tech provided some support. The large swings seen in the index continue to be caused by investors’ expectations around interest rates. We continue to see a tug of war between investors thinking the rate hiking cycle has run its course and investors who think there may be a couple more rate rises to go.
*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.