Alternative Markets Update May 2020
​The current crisis caused a huge spike in uncertainty. Figure 1 shows the VIX closing price and the VIX futures as measures of volatility in the market. Prior to the crisis, the index remained stable between 10 and 25. After the initial outbreak in Italy and as it began to spread rapidly, it spiked to above 70, while the futures exceeded 80 at one point. Since the spike the index has steadily declined and is now back at 30, as the virus outbreak is mostly under control now, but there is still a substantial fear of a second wave that might hit, if no vaccine is found. The scenario that a vaccine is developed prior to the possible second wave is highly unlikely, as many from health care industry claim that a vaccine will be available earliest in the late autumn and even more claiming that there will be no vaccine until 2021. The second wave however is likely to appear in autumn or if reopening measures are executed too fast.

Figure 1: Comparison of VIX Closing Price and VIX Futures Within the Last Year, Source: CBOE, May 2020

As a consequence of volatility, the gold price rose substantially. The gold price continuously increased over the last year, as visible in Figure 2. It started with the trade war between the US and China, which drove gold prices up until the virus induced crisis started, at which point it accelerated its gains. After the virus had spread in many developed countries, an unprecedented day occurred, at which all assets fell, even though the reasons were different. For gold, it was due to the fear of not enough supply being available. After this fear had perished, gold started rising significantly again, especially as the Fed and other major central Banks started printing huge amounts of money, which raises the fear of inflation. As gold is an inflation hedge, it rose even further, leading to the projection of the Bank of America that gold’s target price is $3,000.

Figure 2: Gold Performance Within the Last Year, Source: Barron's & Market Data Group, May 2020

Alternative Markets Update May 2020
The overall situation of Covid-19 is finally getting better. Most countries in Europe have started to loosen their restrictions, while many countries have already loosened their restriction multiple times. So far, the loosening of restriction has been a success, as there were mostly no increases in daily infections. In the US, the situation got better as well, but not to the level as it is in Europe. Despite the still relatively high number of infections in the US, they are loosening their restrictions too. The market fear of a second wave is very present, especially in the US. There are finally some good news in the oil market, as oil prices have stabilized and rose continuously to above $25 per barrel for crude oil. In the hedge fund industry, CTAs remain the most profitable strategy, despite the weakness of the energy sector in the current market environment. In general, April 2020 was a very good month for hedge funds, as the industry posted its best monthly performance in six years, which is largely driven by the substantial bounce back of equities, after their huge decline in March 2020. In the crypto space, the highly anticipated Bitcoin (BTC) halving took place on Monday, the 11thMay 2020. BTC started rallying upwards since the end of April, which was caused by the widely discussed upcoming halving and information that more institutional investors are looking at BTC, as a potential hedge against inflation. As a consequence, BTC rose sharply from $7,700 on 28th April to $9,300 on 30th April. During the next week it remained relatively stable, with an additional surge on 9th May, after which BTC rose above $10,000. However, just a few days prior to the halving, BTC dropped again and remains now $9,000 (as of 13th May). The impact on private equity and private debt due to the coronavirus is still uncertain, as data in these industries are available with a significant time delay. In real estate, house prices fall, especially luxury real estate.

Macro and Political Outlook May 2020 by Macro Eagle
1 – APRIL REVIEW Another month for the history books. Despite “total lock-down” and widespread economic implosion, the S&P500 (+12%) had its best month since January 1987, mainly thanks to unprecedented fiscal and monetary stimulus. This dichotomy between the real economy and financial markets reminds me of an injured soldier (economy), who while high on morphine (stimulus) keeps cracking jokes (market). The problem: morphine only gives you time … it does not solve the problem and it can have nasty side-effects. More on that below. First, the review:
Week 1: With Trump warning of up to 240,000 US casualties on April 1st, we had the worst S&P quarterly start EVER (-4.4%). The next day, oil had its largest 1-day gain EVER as Russians and Saudis started talks. The week ended with the biggest oil price gain (+32%) since 1983. Boris Johnson taken to hospital.
Week 2:  Positive Covid data in Europe and NYC trigger a 7% rally on Monday (6th). Bernie Sanders drops out of the presidential race (Wed 8th). Fed adds $2.3trn in stimulus and buys junk bonds for the first time EVER (Thu 9th). The S&P (+12%) records its best week since 1974 and technically enters a “bull market” (up 20% from the lows), ending shortest Bear Market ever. Really? That’s it? Eurogroup agrees emergency package.
Week 3: OPEC+ agrees on biggest production cut EVER (10mbd). Market rallies on positive Covid data and vaccine-hopes (Gilead’s remdesivir) despite grim IMF global growth forecasts, worst ever decline in US Retail Sales (-8.7%) and largest ever drop in US housing starts.
Week 4: WTI (oil) May future contract drops into negative territory (-$37) for the first time EVER on supply-demand technicalities. US Senate passes $500bn stimulus bill. ECB follows Fed and accepts “junk” as collateral. Trump suggests disinfectant as possible Covid cure. 
Week 5: “Re-opening” plans start the week on a positive note. But markets get hit with a new wave of negative data: US Q1 GDP -4.8% (worst since 2008), US Consumer Spending at -7.5% (biggest 1-month drop since records began in 1959) and disappointing Amazon results. It slowly dawns on markets that all might not be that well.