The Daily Update - Fed, Hedge funds, IFO

August thus far has been the quietest of months for over five years when measured by the range of the 10-year US Treasury note which is just 15bps. That could all change with just five trading days left in the month as Fed Chair, Janet Yellen opens the annual symposium at Jackson Hole, Wyoming tomorrow. The symposium has been staged by the Kansas City Federal Reserve Bank since 1978 when the story goes that then Chair Volker chose the location due to the exceptional fly fishing in the area. The market is currently pricing a 50% chance of a rate hike this year with a 28% chance of a September hike and so everyone will be hanging on Yellen’s every word trying to obtain further clues as to the Fed’s latest thoughts. With US durable goods numbers PMI data releases today, and GDP and Personal consumption numbers tomorrow odds are we may see a little more volatility ahead of month-end.

Elsewhere, reports that some companies may close Hedge Funds which had their biggest drawdown since February 2009 last month as $25.2bn was withdrawn taking the total amount to $55.9bn so far this year. In an industry which charges around 2% fees with a 20% taking of profits this should not surprise. In fact most withdrawals were aimed at underperforming funds with inflows continuing for funds returning more than 7% this year. The Hedge Fund industry is thought to manage around $2.7tn, so this amount of withdrawals is a fraction of the overall industry; but these flows do need to be monitored to gauge investor intentions.

While focus may be on the Fed, the latest data from Germany this morning in the form of August’s IFO Index may cause the ECB some concerns as the index fell the most since May 2012, with its lowest reading since February. The drop, which caught the market off guard with forecasts for a small rise, reflects German executive concerns over the UK’s Brexit vote, they  see the UK as their third largest export market. According to a further survey of German purchasing managers manufacturing weakened in August and the service sector posted its weakest performance in 15 months.

This may be the beginning of general weakness in Europe as indicators start to reflect the outlook for trade into the UK from European companies. 

On that cheery note have a good evening.