Pharo Macro Fund managed a +0.66% return in July after a -2.1% detraction in June. This time the combined effect of soft, accomodative comments from the central banks of the U.S., Japan and England were able to appease some market turbulence. The $1.8 billion fund is up 8.3% for the year so far.

Pharo Macro

Bank of England signals easy policy

In today’s speech, Bank of England governor Mark Carney reiterated his intention to keep rates low and induce further easing if conditions require them.  Carney said, “We are giving confidence that interest rates won’t go up until jobs, incomes and spending are recovering at a sustainable pace. In particular, we will have to see the rate of unemployment, currently 7.8%, fall at least to a threshold of 7% before even beginning to consider whether to raise Bank Rate.”

However Societe Generale’s Brian Hilliard says that one should not expect that further easing from BoE is in the books, it is unlikely to happen under the current rate of growth in the U.K., and any rate cuts in the next MPC, Monetary Policy Committee, meeting is improbable.

Pharo Macro expects pressure in emerging markets

Pharo comments on the increasing wide return between emerging markets and the developed world, while developed economies are showing slight improvements in indicators like manufacturing PMI.  Emerging markets are scrambling to keep their currencies afloat, as current account balances deteriorate across the board. Pharo Macro is reminded of the 1990’s credit crisis in emerging markets when the developing world saw increasing fiscal defecits, constrained growth and rising inflation.

Markets in China, Indonesia, Philippines, and Thailand are already in bear territory. Morgan Stanley (NYSE:MS) estimates a loss of $81 billion from central bank reserves of EM’s since May. Some analysts think that the outflows are temporary and will fizzle out and will reverse eventually, whereas others are of the opinion that the recent drying up of EM assets has exposed structural flaws in their economies which will not be reversed by U.S. bond yields scaling back or investors becoming less bearish on EM’s.

Profit and loss in July

Given the increased dispersion in assets and regions, Pharo Macro took quick profits and went in and out of positions in July and is bearish in EMs going forward. The fund profited from longs in Greek bonds, longs in MXN, Brazilian real and short in Hungarian froint against euro, short Turkish rates, longs in New Zealand dollar and Polish zloty.

Detractors for the month of July were shorts in USTs, shorts in Colombian peso and Korean won.