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Hedge Fund Element One. July performance + market overview

Hedge Fund Element One performed +7.16% during July 2022 .

Element ONE
Issuer: ELEMENT ONE LTD 
ISIN Number: VGG299771086
IssueDescription: USD CL B SHS
ISO CFI: CICXXX

  • Hedge Fund share price —$1726.40.

USA

S&P 500 increased by 9.08% — from 3798.50 to 4133.50, and the Nasdaq-100 climbed by 12.49%. YTD decrease for S&P 500 is currently at -13.50%, for Nasdaq-100 — -21.03%. The dollar index hiked by 1.26% — from 104.465 to 105.780.

The cost of a 5-year credit default swap (CDS) in the US rose by 5.78% in June, the figure at the end of the month was 19.93.

The interest rate on the federal fund is 2.25–2.50% (previously 1.50–1.75%). Since March, the Fed has carried out the most challenging rate hikes in the last decades. Market rate expectations at the end of the year are 3.50% — 3.75%.

Minutes of the FOMC meeting (July 27)

  • Most participants expect a range increase of 50 basis points in September.
    The federal funds rate will remain above the long-term discount rate of 2.4% until the end of 2024 (average).
  • The Committee will increase the monthly redemption limits on open market accounts (SOMA) from September, as announced in the Plans to Reduce the Size of the Federal Reserve’s Balance Sheet (released in May).
  • Treasury coupon principal payments will first fall below the $60 billion limit in September, with the remainder of the repayment being made in line with the maturities of the Treasury bills. Agency mortgage-backed securities (MBS) payouts are expected to fall below the higher September limit of $35 billion starting September.
  • Consumer price inflation, as measured by the 12-month percentage change in the Personal Consumption Expenditure (PCE) price index, remained elevated in May, and available information suggests that inflation was still high in June.

Key economic metrics

Inflation

  • Consumer price index CPI fell from 9.1% in June to 8.5% YoY in July (better than expected). This was facilitated by a significant reduction in energy and food prices.
  • The core consumer price index (Core CPI — cleared of two volatile components: energy and food) did not show a decrease: of 5.9% (prev. 5.9%).
  • The median CPI fell by 29% in July (from 9.13% to 6.48%).

Median CPI

Employment market (July)

  • Number of initial claims for unemployment benefits: 250K (prev. 252K);
  • Change in the number of employed in the private non-agricultural sector: 471K (before 404K);
  • Unemployment rate: 3.5% (prev. 3.6%).

US GDP (q/q): -0.9% (prev. -1.6%).

The Fed’s balance sheet shrank 1.29% from its peak ($115.73 billion).

Fed balance sheet

The yield spread of 10- and 2-year Treasury bonds was -0.27% (currently -0.45%), which is significantly lower than before the 2008 crisis.

The yield spread of 10- and 2-year Treasury bonds

The slowdown in the real estate market continues: demand for housing and construction volumes are declining. The average rate on a 30-year fixed mortgage in the US was 5.22%.

Euro area

European Central Bank Monetary Policy Decisions (July 21, 2022)

  • ECB decided to raise the ECB’s three key interest rates by 50 basis points (the interest rate on the main refinancing operations and the interest rates on the margin credit line and deposit line will be increased to 0.50%, 0.75%, and 0.00% respectively from 27 July 2022).
  • The Governing Council saw fit to take a larger first step towards the normalization of the policy rate than indicated at its previous meeting. This decision is based on an updated inflation risk assessment.
  • The Board of Governors intends to continue to reinvest in full the principal payments of the maturing securities purchased under the APP for a long period after the date it starts raising the ECB’s key interest rates, and in any case until as long as it is necessary to maintain sufficient liquidity conditions and appropriate monetary policy.
  • With regard to PEPP, the Board of Governors intends to reinvest principal payments on redemption securities purchased under the program until at least the end of 2024.

Key ECB statistics metrics

Electricity prices in Europe have hiked to new records. Surging natural gas prices deepens the energy crisis, thus increasing the risk of upcoming recession.

Electricity prices in Europe

According to Bloomberg, recession risk in the euro area has reached its highest level since November 2020.

The likelihood of a recession in the euro area

Global Markets

Countries whose central banks hiked rates by 50+ basis points in 2022

IPO (US)

US IPO Annual Yield

IPO activity in 2022

IPO revenue in 2022

Commodities market

  • The overall commodity market, represented by the DBC (Invesco DB Commodity Index Tracking Fund) ETF, fell 1.99% — from 26.64 to 26.11 in July.
  • Gold futures (GC) fell 1.41% to $1,781.8 at the end of the month.
    The price of futures for WTI (CL) fell by 6.75% — from 105.76 to 98.62 $/b in July.
  • The Bloomberg Commodity Spot Index, which tracks 23 futures for energy, metals, and crops, stood at 577.5.

Bloomberg Commodity Spot Index