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Alternative Market Briefing

Hedge funds gain as risk appetite returns with both CTAs and macro funds turning long on dollar

Tuesday, May 15, 2018

Komfie Manalo, Opalesque Asia:

Hedge funds posted positive returns last week as risk appetite returned led by CTAs, mainly thanks to their long energy and bond positions, Lyxor Asset Management said in its weekly briefing. Merger funds also benefitted from a rapid spread tightening across most large deals.

By contrast, Lyxor AM senior strategist Jean-Baptiste Berthon said that L/S equity funds did not benefit from the bounce. They had limited exposures to momentum and energy stocks, two key drivers this week. The earnings season, which sanctioned disappointments more than it rewarded upside surprise did not help either. Special situations also lagged, he said.

Berthon said, "The wage growth and inflation numbers released in the U.S. were strong enough to suggest continued growth, but they were disappointing enough to ease fear of an even more aggressive monetary normalization. Rates were marginally up. Cyclical outperformed the defensive sectors. Oil prices continued to appreciate along with escalation risk in Middle East. EM markets enjoyed a respite."

Where do macro traders think USD is going?

Berthon explained that since mid-April, the broad DXY dollar rallied +3.5%. Its drivers seem to have shifted. Inflation and growth differentials as well as its safe-haven status now matter more than capital flows and national accounts prospects.

"Given how pivotal the dollar is for many assets, we assesse......................

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