Commentary provided by Volt Capital Management

The global economy has progressed from a stimulus-driven recovery to a ‘real’ demand-driven recovery. We note that the economic growth has overcome both the (expected) stimulus reduction and the global supply chain constraints (e.g., shipping, semiconductors). Equity markets reacted predictably to the strength of the economy and reached new all-time highs. Reduced stimulus and continued inflation pressures pushed fixed income markets lower. Commodity markets were strong, supported by both demand pressures and supply concerns. Notably, European Natural Gas markets rallied sharply on threats of reduced supply from Russia. Currency markets followed commodities and ‘commodity currencies’ such as the Canadian dollar, and the Australian dollar rallied against the US dollar and the Japanese yen.

The Volt program was profitable, mainly due to long positions in the Canadian dollar and the New Zealand dollar against the Japanese yen. Long positions in energy and Copper added to profits. Fixed income trading saw losses from long positions in Euro Bunds and Canadian bonds. Currency trading profited as the commodity rally pushed the Canadian dollar and New Zealand dollar higher, especially against the Japanese yen. Equity trading saw losses from short positions in European equities but profited from a long position in the S&P 500. Energy trading posted gains from long positions in Crude Oil and Gasoline. Metal trading benefitted from a rally in Copper while short positions in Platinum and Palladium detracted. Soft commodity trading profited on both the long side and the short side. The largest contributions were made by long positions in Corn and Cotton. Short positions in Cocoa and Soybean added to gains.

Solid economic growth is precariously balanced against reduced fiscal and monetary stimulus. We expect our fundamental market-by-market approach to have good opportunities as this balancing act will play out differently in each market.

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