Alternative Markets Update June 2020
Last week, on the highs, saw first significant equity fund inflows since first week of April, as the “cash on the sidelines” gets dragged in. with USD 4 trillion in US money market funds along and underweight equity investors aplenty, there is plenty of reluctant buyers to be dragged in.
Interestingly, the rate of change of the Fed balance sheet has collapsed over the past weeks; with the sheet only increasing by USD 4bn last week. It has been a core view of ours, that President Trump will regard the equity market as his primary scorecard for his presidency. The concept of reclosing the country, or acknowledging the virus and its implications, is being left behind by the US Administration. They will do everything they can to get stocks higher, knowing that IF Trump is voted out in November, the legacy of a record stock market he will be able to show that he left “the greatest economy ever”. So we know that US policy makers have huge firepower at their disposal to drive equity prices higher. ​

The charts below – the first shows the Fed’s balance sheet in blue plotted against the SP500  in red. The top slide shows the absolute size of the sheet, note the correlation with the SP500. The lower slide shows the week on week percentage change in the balance sheet. As can be clearly seen, the rate of change of sheet expansion has collapsed. We should never forget, that getting the US equity market, which will in turn drive all equity prices higher, is now the primary policy of the US Administration.

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.

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.

Alternative Markets Update April 2020
The market remains highly uncertain and it is acknowledged that this crisis is different to what the world has ever seen before. Even compared to previous emergency situations, the crisis involves more layers, most notably, the coronavirus pandemic itself, the biggest drop in oil prices ever and the number of central bank interventions the world has ever seen. Regarding the coronavirus, the situation is substantially different across continents. In Asia, China is slowly returning to its normal life, whereas other countries such as India have declared state of emergency relatively recently. In Europe, the situation is getting better, as the most severely hit countries have declining daily infections and deaths related to Covid-19. Furthermore, countries have announced the loosen the restriction, some of which have been already implemented as shown in Austria. In the US, the situation is getting more tense, as the country has more than half a million of infections and the development in cities such as New York, where mass graveyards are dug, is alarming. From a macro perspective, there are many concerns, such as the monetary policy, the wide job losses and the decline in GDP. Monetary policy adjustments are mostly used plus massive fiscal stimulus. As mitigation for the job losses, rescue packages are provided by governments and central banks. The US is providing a package worth $2.3tn, whereas the EU agreed on a €500bn rescue budget. The GDP considerations are highly uncertain, as at its core, it reflects the trade-off between the health of citizens and economic damage caused by the virus. However, there are many different estimates and some of them implicate huge declines of up to 30% in GDPs for example in the UK. 

​When shifting the perspective to the alternative industry, the general pictures looks slightly better. Hedge funds were mostly able to limit the downfall in the equity market and remained in the single-digit loss area overall in March. Figure 1 shows the historic worst quarters of the hedge fund industry. Despite the second largest loss, the total change in the AUM reduced the least among those five worst quarters. The performance of hedge funds is largely dependent on the strategy pursued, whereas long volatility and tail risk strategies are up 30% on average, most strategies have losses in the single digit area and some, especially those with strong equity exposure are down up to 20% according to Figure 2. Nevertheless, the private markets are looking healthy, as most industries sit on a record dry powder ready to be committed, although these investments are likely to be postponed until the economic situation is getting more stable, there will be great opportunities, due to dips in asset valuation caused by the crisis. Fundraising for private capital remains at an extraordinary high level when considering the current situation, as Q1 2020 was almost as good as Q1 2019, which was a record year.

Alternative Markets Update March 2020
​The current market environment is highly unstable. The coronavirus remains the most discussed topic, as the number of infections keep increasing at a fast pace. Within the last two weeks, most countries in Europe have declared a state of emergency alongside a lockdown, which only allows people to go outside, if they need food or medication. The number of deaths increases faster than ever, as the health care system in the most affected countries in Europe, Italy and Spain, are overrun. The virus in the US is spreading fast and the number of infections rose above 50,000, despite being severely behind Italy in the infection curve. In Asia, the situation is different in each country, as India just declared a lockdown, while China partially removed the lockdown in Wuhan and has had no new cases since last Thursday. The market environment is difficult to evaluate, as different asset classes correlate to a high level and the situation we are experiencing is unprecedented. Many governments and central banks are issuing rescue packages to add liquidity to the market and help businesses to overcome the close future. Central banks have also cut rates multiple times, if they could without falling to negative interest rates. The US provides $2tn to boost the economy, while Germany agreed on a package worth €750bn to fight the impact of coronavirus. Since Tuesday, the markets have been gaining substantially, despite high daily volatility. The Dow Jones for example, rose from almost $18,000 back to $22,000 and European indices have seen similar developments, although their upward movement was not as sizeable. Oil saw its highest percentage gain within a day  last Thursday,

while Bitcoin recovered from its $3,800 low and is back at $6,600 (as of 25th March). As of end of February 2020, the tactical trading strategies remained the most profitable, as the discretionary global macro strategy and the Bitcoin Altcoin actively managed strategies are up almost 23% in 2020. The equity strategies had huge deviations, whereas the strategies, which could hold their gains from January are up 7%. The remaining equity strategies were the biggest losers in February, as they lost from 5% up to 8%. Credit strategies remained relatively stable, as most of them either lost a few basis points or they gained some basis points.

​Macro Outlook March 2020 by Aquila Markets
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We are entering the “whatever it takes” response phase, and whilst I believe that more countries will enter full lockdown, and more cases will grow in Africa and India (potentially a true catastrophe), for markets in the short term the huge Fed package announcement yesterday does change the game somewhat.

Alternative Markets Update March 2020
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​Since the last week in February 2020, markets across several assets plummeted. Main driver of this development is certainly the coronavirus cover-19, more specifically the increased number of infections outside China, and the response of the FED and BoE to cut interest rates by 0.5% each as a response. Furthermore, a disagreement among Russia and Saudi Arabia arose during their OPEC+ meeting about the oil price strategy, which lead to a 30% loss in oil prices. The major indices of most countries lost more than 10% and face a high volatility since the virus outbreak outside China with a WHO classification as epidemic. It is expected that the interest rates in the positive yielding countries like US, Uk, Australia and New Zealand are lowered further. Safe haven assets, such as currencies like CHF and JPY or commodities like gold continuously increased in value. Bitcoin, oftentimes referred to as digital gold, could not establish itself as safe haven asset, as it decreased substantially to $6,105 on 12th March 2020 and other crypto assets followed in a similar fashion with declines.

Macro Outlook March 2020 by Aquila Markets
​The current situation is now comparable to 2008 in terms ​of the potential shock to the global economy. Whilst the initial shock of the virus on global supply chains, the ongoing ramifications are significant. In the GFC, within a few short weeks, Lehman went bust, Banks merged, AIG was bailed out amongst many other companies. Rates were slashed globally. The world “survived”. But the policy responses – QE in waves in the US , austerity in Europe, the rise of China , US monetary policy, has defined the past decade. But, because failure was banned and assets supported, we have fuelled yet another credit driven boom especially in the US.