• Fund’s QAEUR hedged class fell 0.08% over the month; +4.54% YTD
• Uncertainty about next Fed Chair and ‘solid’ economic data pressure Treasuries
• ECB scales back QE to €30bn per month but extends the term
• US dollar index gained 1.6% over the month
Despite a rally into month end, US Treasuries struggled to make headway; the yield on the 10 year rose 5 basis points to end the month at 2.38% although the 2yr-30yr curve bear flattened. Inevitably, there was some skittishness ahead of the announcement of the nomination for the next Fed chair and the implications this has for policy. Into month end,
Jerome Powell appeared the favourite which gave the market some comfort as it implies a high degree of policy continuity. Investors continued to look for a further rate rise in December and data on the US economy generally showed the economy growing at a solid pace but importantly the inflation data continued to remain benign. The Republicans did make some progress by getting the budget resolution adopted by both the Senate and Congress and getting closer to presenting draft legislation on tax reform but the process is likely to be tortuous and it is too early to tell if it will provide much in the way of a growth stimulus.
This backdrop supported the US dollar index (DXY) which gained 1.6% over the month. Brent crude gained 6.7% mom helped by hopes of an extension in production cuts and uncertainty about production from the Kirkuk region in Iraq.