Tuesday, May 3, 2016

April futures returns - Calm mixed with commodity trends

There was a disconnect between the performance in market sectors and the performance of managed futures funds based on our simple review of market sectors. We run each market through a simple trend model each month to determine the direction of the majority of markets in the sector and then make a sector profitability assessment.  April was a strong month for commodities although the increase in volatility made entry into these trends difficult. 

Grain markets saw a significant increase in volatility that made active trading in options very successful. For trend-followers, the environment was challenging but did offer strong opportunities. There were also good trends in cocoa, cotton, and sugar.  The oil complex showed strong gains in spite of fears about the oil rally be overdone. Base metals were also volatile but generally moved higher. Precious metals, especially silver and platinum, generated good trends. 

The currency markets moved in tandem with commodities albeit at lower volatility. Generally, a weaker dollar will see stronger demand for commodities. The Fed being on hold and concerns about the US economy caused more dollar sell-off. The biggest currency risk was the strong yen move on the lack of further action by the BOJ. Rates markets were rangebound given stable central bank expectations.

Equity and bonds markets were much calmer in April relative to the moves seen in the first quarter. The stable Fed behavior and mixed views on the economy kept markets relatively rangebound although there were a number of short-term trend opportunities. 

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