November 2024 comment

November was – almost – all about the Republican sweep in the US elections that installed Donald Trump for a second term at the White House. The most favourable scenario for the GOP had already been partially discounted during October, although the magnitude of the win propelled another leg up in the US exceptionalism trade that has been dominating this year. US equities surged and pulled world markets along for the ride, as expectations of broad-based deregulation trumped initial tariff threats hurled at China, Canada and Mexico, as investors saw – especially the latter – more as opening bids for future negotiations.

Not long after, the Federal Reserve followed through with the anticipated 25-basis point cut, although the market pared future cuts to just a quarterly pace in 2025, reflecting the expectation that Trump policies should at the very least make inflation dynamics a bit stickier than before.

New government in the US whilst Europe’s largest economies were heading the other way, as the traffic light coalition in Germany blinked out and Le Pen took the French budget ransom. The political malaise added to the poor PMI surveys showing contraction in both European manufacturing and services sectors, and the fear that the incoming US president intends to squeeze Europe on defense spending, Ukraine and trade. With such a widening of fates on each side of the Atlantic, it wasn’t surprising to see the US dollar rallying, especially versus the euro.

Nevertheless, in a month where everything seemed to be Trump related, it’s interesting to note that although our positioning benefited from the expected impacts of rising equities and US dollar, the biggest contributions came from more idiosyncratic stories captured in both fundamental and trend angles. The most notable example of this were Agriculturals, that were our best performing sector as weather-related issues in the tropics continued to affect Cocoa and Coffee supply – both prices made all-time highs, accumulating with their very attractive roll yields, along with a few extra boosters like long Cattle and short Canola.

Second came Currencies, with the performance coming not directly from US dollar strength but more from Euro and Real weakness against Sterling and the greenback, respectively. More specifically the Brazilian real tumbled as fiscal announcements by the Lula administration disappointed investors looking for procyclical policies to be reined in. After successfully participating in the Latin America carry currency rally for the most part of 2022 and 2023, our strategy is now ?performing on the downside versus the USD after flipping positioning gradually during the beginning of this year.

The final push to get us over the +3% hurdle for the month came from the rally in global equities that more than compensated for the few blemishes arising via short Natural gas and long Gold – that contrary to October, regained its negative correlation to the dollar and duly plummeted.