The global macro strategy saw a rare rise in November, as their favorite trade rose once again. With the weakening of the Japanese yen, which fell 4% against the USD, the Nikkei ended the month up 9.3%. Long in Japanese equities and short in JPY has been the hot theme for macro strategy, which spent the last three months nearly flat against the dollar. Another position that took an upswing was the short Australian dollar trade; the Aussie fell 3.7% against the USD in last month.
Japan’s bumpy inflation ride
According to data from UBS Hedge Fund Monthly Update, global macro strategy netted a gain of 0.9% in November and is now up 3.5% for the year. In comparison, the average hedge fund took a return of 1.3% last month.
Considering the recent movement, UBS FX Strategies has changed its 1-month forecast for JPY/USD to 103 and 3-month forecast to 105. Despite Shinzo Abe’s no-stone-unturned quantitative easing, UBS analyst Daiju Aoki thinks that it would be harder to move inflation at the same pace as before. Hitting the 2% target will be tougher going forward, he predicts that the trajectory will move off track in April of next year. Such an event would stimulate the BoJ to accelerate their easing package and upscale the level of its bond buying program, according to the forecast of UBS.
Global macro hedge fund up on Japan and Aussie
Woodbine Capital, a global macro hedge fund, had seen a dull year till the end of October. The fund recorded a major gain of +5% in November, bringing up YTD performance to +3.5%. Two of the major themes that were profitable were the fund’s short AUD/USD position and its exposure in Japan. Woodbine has heavy weighting in Japan and was up in its long equity and short JPY positions. The fund believes that the corporate sector will contribute to recovery in Japan as they increase wages in the near future. Furthermore indications of further easing from BoJ and the likelihood of Japan’s largest pension fund increasing its exposure to Japanese equities and foreign markets is also a plus for Asia’s second largest economy.
Woodbine has a bearish view of Australia – the fund thinks that the economy is now reversing from the peak it achieved in the last year. Investments in the country have slowed down and the central bank is pursuing an easy monetary policy to better navigate the changed environment. The fund is shorting the Australian dollar, a position which was profitable in November.
Downward pressure on AUD
UBS thinks that the Reserve Bank of Australia will be shopping in the market for approximately $5 billion in foreign reserves over the coming months, as the new Treasurer wants to enhance RBA’s capacity to conduct monetary easing. The added buying up of foreign reserves will further accelerate the downward pressure on AUD and UBS thinks that the Aussie will weaken against the dollar.