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Hedge Fund Element One. June Performance + markets overview

Hedge Fund Element One performed -5,73% during June 2022.

The hedge fund’s result is outperforming the market benchmark. S&P500 has declined by -8,27% during the same period. 

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

  • Hedge Fund share price — $1611,05.

USA

S&P500 index has decreased by -8,27% in June from 4131,25 down to 3789,50. The year-to-date decline accounted for 20,82%, which is the anti-record since 1970. The big tech index NASDAQ100 has decreased by -28,79% since the beginning of 2022, also the word result in the last 50 years.

Sector dynamics in the SP500 index for the first half of 2022

Sector dynamics in the SP500 index for the first half of 2022
  • DXY index increased by 2,65% — from 101,77 to 104.
  • The cost of a 5-year credit default swap (CDS) in the US surged by 16.01% in June, the figure at the end of the month was 18.84. The assumed probability of default is  0.32%.
  • The interest rate on federal funds is 1.50–1.75% (prev. 0.75–1.00%).
  • The latest data on inflation and the labor market increased the likelihood of a Fed rate hike at the July meeting by 0.75-1.00%.
  • The market expects the rate to rise by 0.75-1.00% in July, by 0.50-0.75% in September, and in total up to 3.75-4.00% by the end of the year.

Key economic indicators

Inflation

  • Consumer Price Index (CPI:) 9.1% y/y (previous: 8.6%);
  • Core CPI (excluding food and energy): 5.9% y/y (prev: 6.0%);
  • Producer price index (PPI): 1.1% m/m (previous: 8.6%);
  • Core Producer Price Index (PPI): 0.4% m/m (previous: 0.6%).

US Consumer Price Index, YoY

US CPI y/y 2022
Source: Bloomberg

Employment

  • The number of new jobs amounted to 372k (forecast – 268k, in May – 384k);
  • The number of new jobs in the private sector amounted to 381k (forecast – 240k, in May – 336k);
  • The unemployment rate remained stable at 3.6%.

The Fed’s balance sheet has declined from its maximum level by 0.82% ($73.636 billion) since April.

US FED balance

US FED balance

The yield spread between 10-year and 2-year US Treasuries inverted: -0.19%.

Yield spread of 10- and 2-year US Treasuries

Yield spread of 10- and 2-year US Treasuries

Market expectations for inflation in the US Treasury market

Market expectations for inflation in the US Treasury market

US spending on government debt from October 2021 to May 2020 amounted to $711 billion – this is 30% more than a year earlier, WSJ reported. At the same time, the annual federal budget deficit decreased by 79% over the same period, as other federal spending decreased and tax revenues increased.

Eurozone

The euro exchange rate for the first time in 20 years fell to parity with the US currency.

European shares for the first half of the year showed the worst dynamics since 2008.

Dynamics of the Stoxx 600 European Equity Index

Dynamics of the Stoxx 600 European Equity Index

The ECB raised rates by 0.50 percentage points in July. 

Eurozone inflation hit new records.

  • PPI (industrial inflation): +36.3% y/y (previous +37.2%);
  • CPI (consumer inflation): +8.6% y/y (previous +8.1%);

Eurozone inflation: 8.6% in June

Eurozone inflation: 8.6% in June

Bloomberg predicts that inflation in the main economies of the eurozone will decline at the end of 2022.

Eurozone inflation forecast until 2023

Eurozone inflation forecast until 2023

Bloomberg predicts a 45% chance of a recession in the Eurozone.

Global markets

The IMF lowered its forecast for global economic growth in 2022 from 2.9% to 2.3%.

High global inflation along with a global decline in GDP leads to a global stagflationary scenario.

The ratio of inflation and GDP in the world economy

The ratio of inflation and GDP in the world economy

IPO (USA)

US IPO Annual Yield, YoY

Годовая доходность IPO США год к году

There have been 41 IPOs this year, an 82.6% drop from the record-setting last year, when the market surged on Fed cash injections.

Number of US IPOs 2013-July 2022

Total funds raised in the IPO market this year were $4.2 billion—95% less than during the same period last year.

Raised funds during IPO in the USA 2013- July 2022

IPO structure (YTD)

Source: Renaissance Capital.

Commodities markets

  • The overall commodity market, represented by the Invesco DB Commodity Index Tracking Fund (DBC) ETF, fell 7.50% in June from 28.80 to 26.64.
  • Gold futures (GC) continued to decline by 2.22%, amounting to $187.30 at the end of the month.
  • The price of futures for WTI (CL) fell by 7.77% in June from $114.67 to $105.76/bbl.

OPEC has maintained its forecast for the growth of global oil demand in 2022 at 3.4 million barrels p/day.

  • Due to the growing fear of a global recession, the non-ferrous metals market also showed the worst dynamics since 2008.
  • In June 2022, the FAO Food Price Index* (FPI) averaged 154.2 points, down 3.7 points (2.3%) from May. This decline is observed for the third month in a row, but this figure is still 29.0 points (23.1%) higher than a year ago.