RBF UCITS Monthly - April 2018

  • The Fund’s ID USD class fell 2.47%
  • Geopolitical concerns ease following conciliatory trade tones from US and China
  • USTs sold-off on renewed inflation concerns
  • Offshore renminbi up 4.71% year to date, in total return terms
  • UST curve could continue to flatten and eventually invert

Geopolitical concerns eased with more conciliatory tones from China and the US officials, and the unofficial announcement of a meeting in China in May to discuss trade tariffs. Suggestions of North Korea’s denuclearisation following the historic Korean Summit also supported the risk-on sentiment towards the end of the month. Bumper Treasury issuance, a spike in oil prices and broadly robust US economic data prints led to renewed US inflation expectations and the yield on the 10-year US Treasury spike above the 3% psychological level, eventually closing 21bps higher at 2.95% over the month. Interestingly, the UST curve did flatten during the month and the spread between the 2s10s, 5s30s and 2s30s remained at decade lows. Meanwhile, the dollar gained momentum rising over 2% last month, and as we mentioned oil spiked higher, with Brent closing 16.7% higher, above $75pb. 

Although the offshore renminbi fell 0.64% against the dollar over the month, it was one of the better performing currencies against the stronger dollar and remains up 4.71% year to date in total return terms. China March activity data surprised to the upside and growth was in-line with market expectations at 6.8% yoy. Domestic growth was a key driver of expansion in the first quarter this year suggesting the economic model transformation is underway, and the economy less reliant on external growth; positive news in the face of trade tensions. Also of interest was the PBoC’s 100bps RRR cut for certain banks. We do not see this as a change to the current prudent and neutral policy stance, rather an opening up of interbank liquidity and part of China’s continued drive of interest rate marketisation reforms; as highlighted by the central bank’s Governor Yi Gang at the Boao Forum.

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