General Market Review
Following the collapse of Silicon Valley Bank (SVB) and the subsequent forced take-over of Credit Suisse by UBS contagion fears came up. The US Federal Reserve Bank as well as the Swiss National Bank reacted quickly by announcing new lending facilities to strengthen liquidity in the capital markets. Subsequently, 10-year US treasury rates fell by 50bps from 3.95% to 3.45% at month end. The bond market rallied and the broader indices were able to recover. At the end of the month the growth-oriented market segments have shown a firm performance, whereas the cyclical market segments have remained under pressure. The S&P 500 Index was up by 3.67% whereas the Nasdaq composite Index gained by 6.78%.
In the US inflation numbers for the month of February came in as expected. The consumer price index (CPI) increased by 6.0% whereas the core consumer price index (CPI excluding food and energy prices) increased by 5.5% on a year-on-year basis. Compared to the month of January inflation numbers have moderated from 6.4% and 5.6% respectively. In the Eurozone inflation rates have remained at elevated levels compared to the preceding month with a consumer price index (CPI) of 8.5% and core price index of 5.6%
Given the elevated inflation numbers central banks have continued to increase interest rates. The FED raised the fed funds target range by 25 bps to 4.75-5.0%, while the ECB increased its key interest rates by 50 bps. Thereby, the deposit rate and marginal lending facility rate now stand at 3.0 and 3.75% respectively.
Energy and Transportation
Market participants became increasingly concerned about potential second round effects of tighter lending standards in the banking system and its potential effects on oil demand. The price of Brent-Oil fell from $ 83.9 to $ 79.8 per barrel at month end.
Both US and European energy stocks dropped with the MSCI World Energy and Stoxx600 Oil & Gas index falling by -1.5% and -6.4% respectively.
Alongside the energy segment the transportation stock sector dropped. The Dow Jones Transport Average Index fell by -4.22%. The shipping and aviation segment took the sharpest decline with the Russell 2000 Marine Transportation and the US Global Jets Index declining by -9.9% and -5.6% respectively.
Against this macro back-drop in a risk-off environment for cyclical stocks certain freight sub-segments have shown strength.
Crude Tanker Rates (VLCC-Very Large Crude Carriers) have averaged $ 80k/day in March vs. an average of $ 38k in the month of February. Dry Bulk Rates (Capesize) have averaged $14k/day vs. $ 3.7k/day in February. LNGC (Liquified Natural Gas Carriers 160) spot rates have remained at elevated levels of $58k/day.
On the other hand, LPG spot rates fell back to $48k/day from higher levels in the previous month. The container market continued its downward trend as the Containerized Freight Index (SCFI) dropped another 4% versus the previous month. The year-on-year decline of the SCFI index thereby stands at -79%.
Fund Performance
The overall fund performance was negative. Short positions had a positive contribution. The fund’s long exposure to the less volatile utility sectors was a positive performance contributor. The shares of Engie SA. have increased by 5.6% throughout the month. Within energy the exploration and production sub-sector, showing the strongest sensitivity to oil prices, has been a negative contributor. Despite the firm freight rate environment, the fund’s long positions in crude oil and product tanker shipping have contributed negatively. On the other hand, the fund’s exposure to the chemical sector via our long position in Stolt-Nielsen Ltd. has been a positive contributor. Overall, the fund was able to cushion the stronger draw-downs of the cyclical market segments in the month of March.
For more information you can find our latest Fact Sheet – March 2023.
Seahawk Investments GmbH
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