- The Fund’s QDUSD class rose 1.12% and +6.54% year to date
- Fed left rates unchanged but expects balance sheet normalisation to begin ‘relatively soon’
- US dollar index fell 2.9% over the month
- Kuwait and the US mediate the Saudi-Qatar spat; GCC bonds perform solidly
July was generally a positive month across asset markets; the VIX index of volatility reached another new low, the S&P another record high and commodities, notably oil and copper, made strong gains. US Treasuries ended the month little changed: the yield on the 10 year compressed 1 basis point to 2.29% at month end.
The Fed left rates unchanged at its July meeting but indicated that it expects to begin its balance sheet normalisation program ‘relatively soon’ assuming ‘the economy evolves broadly as anticipated’. Economic data releases were mixed; the Chicago Fed National Activity Index, a broad based indicator of 85 economic variables, showed a modest improvement to 0.13 in June but missed market expectations. The labour market continued to recover in terms of jobs added but wage data remained benign. Inflation data remained soft (June core PCE inflation came in at 1.5% yoy) which dissipated some of the market’s expectation for future interest rate rises. The IMF downgraded its US GDP forecast to 2.1% for 2017 and 2018 given ‘policy uncertainties’ and a baseline assumption of no change. Against this backdrop, the dollar continued to weaken with the US dollar index falling 2.9% over the month. The euro appreciated as investors continued to anticipate the ECB was getting closer to reducing its stimulus. In the Middle East, the Saudi Arabia et al spat with Qatar continued. Some progress was made when the US stepped in to mediate as Qatar signed a memorandum of understanding with the US on anti-terrorism measures. Middle Eastern credits traded stronger on the back of this although negotiations seem to have reached an impasse for the time being.