General Market Review
Global equity markets performed well in the calendar month of July. The MSCI World Equity Index gained +3.2% and the S&P 500 Index gained +3.3%.
US economic data pointed to stable growth and inflation started to decline. On the one hand, the US ISM manufacturing index fell another 0.9 points from 46.9. On the other hand, the ISM index for services increased by 3.6 points from 50.3 to a level of 53.9. Durable goods orders posted a +1.8% increase and were stronger than expected month-on-month. US consumers continued to show resilience with a +0.2% increase in retail sales. US GDP managed to grow by 2.4% on an annualised basis in the second quarter of 2023.
In the Eurozone, economic data continued to be weak. Eurozone composite purchasing managers’ indices were below the threshold for economic contraction. The Eurozone composite PMI index was 49.9. Eurozone GDP rose by only +0.6% on an annualised basis in the second quarter.
In the US, both headline and core inflation rose by only +3.0% and +4.8% year-on-year, respectively. This showed a weakening of the rise in inflation compared to the previous months. The target range for the key interest rate (Fed Funds Target Rate) rose by 0.25% to 5.25-5.5%.
In the Eurozone, annual inflation rates were at a high level with an increase in both the overall and core inflation rates of +5.5%. The European Central Bank (ECB) raised all three key interest rates by a further +0.25%.
In this environment, yields on 10-year US government bonds rose from 3.84 % to 3.95 %. Two-year US government bond yields fell slightly from 4.89% to 4.87%. Yields on 10-year government bonds in Germany rose slightly from 2.39% to 2.49%.
Energy and Transportation
The oil market was well supported in the calendar month of July as Saudi Arabia announced further voluntary production cuts of 1 million barrels per day for the calendar month of August. This will keep supply tight in addition to the already announced production cuts by the OPEC+ consortium. The price of Brent crude continued to rise from $74.9 to $85.4 per barrel at the end of the month. As a result, the STOXX 600 Oil and Gas Index gained +3.7% in July.
Furthermore, almost all transport segments recorded a strong performance. The Dow Jones Transportation Index rose by +6.9%, while the Russell 2000 Marine Transportation Index gained by +9.8%. Capesize rates increased from $14k/day to $16k/day at the end of the month. In the container freight market, the SCFI (Shanghai Containerized Freight Index) rose by a further +8% compared to the previous month. However, the SCFI index is still down -60% year-on-year. Crude oil tanker (VLCC – Very Large Crude Carrier) rates slipped from $33k/day to $28k/day at the end of the month. VLGC (Very Large Gas Carrier) rates remained at a very high level of around $90k/day at month-end.
The airline segment benefited in the second quarter from lower jet fuel and higher ticket prices in international air traffic. Due to their intercontinental orientation, full-service airlines had an advantage over budget airlines. IATA (International Air Travel Association) was able to revise its forecasts for the European airline segment upwards to the equivalent of $ 5.1 billion. At 94% of pre-pandemic levels, capacity utilisation is still behind the US and Asian markets. However, the Aviation segment’s outlook for the remainder of the year has deteriorated somewhat as further strikes, difficult labour cost negotiations and subdued business travel demand could weigh on earnings on both sides of the Atlantic. The US Global Jets Index ended the month almost unchanged at -0.1%.
Fund Performance
The overall performance of the fund was positive.
The fund benefited from long positions in the oil and gas segments as well as the offshore supply sector. The offshore supply sector is currently benefiting from the tight capacity situation as well as a continuing increase in charter rates in this segment. Due to the persistently high freight rate level, the fund also benefited from long positions in the crude oil and product oil shipping sectors. On the other hand, short positions in LPG shipping were deficient. Other short positions in freight services, freight forwarding, and other transport sectors were negative performance drivers.
For more information you can find our latest Fact Sheet – July 2023.
Seahawk Investments GmbH
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