Deutsche Bank’s Platinum TT International fund was slightly positive in October, up 0.29 percent, while remaining decidedly down on the year, -4.98, as long Eurodollar futures and short sterling futures added to performance over the month, but European equities detracted.
TT International: Positive contributions came from fixed income
The fund’s biggest positive contribution came from fixed income, which was almost equally divided between its long Eurodollar position, which was taken in far out futures from December 2015 to the same month in 2016, and its short Sterling positions, again far out futures from June 2015 to the same month in 2016.
Market watchers in October were broadly surprised by the quick stock rebound that occurred in the middle of the month. As stocks were declining precipitously, it was central bankers to the rescue, observes the DB platinum TT International fund letter.
TT International on central banks’ stimulus programs
It was a suggestion from St. Louis Federal Reserve President James Bullard that the Fed should extend its QE program that was quickly followed by the announcement that the ECB was about to start its bond buying program that kicked stocks in gear, the report noted. The move triggered a powerful rally- the strongest in 3 years in Europe. “Any concern at the end of the month over the hawkish tone of the Fed as QE3 was brought to an end was eradicated as the BoJ took up the baton of liquidity provision with an astutely timed expansion of its stimulus program.” At the same time central bankers were involved in keeping the stock market higher as it withdrew from stimulus, third quarter corporate results were coming in better than expected, particularly in the US, but “decent” enough in Europe as well.
Going forward, with a Republican controlled Senate and Congress not much is expected to change in regards to fiscal policy, the TT International fund managers noted. The case for higher interest rates is not dependent on strong growth numbers, but rather lowered unemployment rate and improved overall labor market outlook. While growth has averaged between 2 and 3 percent, unemployment has fallen 200 basis points. “In other words the productivity numbers are far worse that the 2% average which the US has achieved in the post WWII world,” the report observed.
TT International: Interest rates expectations
The market could respond quite interestingly if there is “some excitement” at the December FOMC meeting. By mid-2015 U.S. interest rates are expected to be 50 to 75 basis points higher. “So how will participants respond to market rates perceived to be behind the curve?” That could be the question de jour heading into the new year.
“The market is not yet discounting rate rises in line with the Fed dots even in the medium-term so there could be some excitement if the December FOMC meeting causes a change,” the investor letter noted.