General Market Review
Inflation concerns have weighed on global stock markets in September. US-10-year treasury yields climbed from 4.1% to 4.6% at month end as the Fed’s longer commitment to higher interest rates started to sink in. The MSCI World Index (USD) and the S&P 500 index fell by -4.3% and -4.8% respectively.
The US Federal Reserve (Fed) has decided to hold the Fed Funds target range between 5.25% and 5.5%. At the same time the Fed has signaled that further interest rate hikes cannot be ruled out. Therefore, market participants have adjusted to a ‘higher for longer” interest rate environment.
In the US economic data was mixed, with the US Manufacturing PMI index coming in at 49.8 vs. 47.9 in the previous month and the US Services PMI at 50.1 vs. 50.5 in August.
In the Eurozone business activity has deteriorated. The HCOB purchasing manager index (PMI) dropped from a level of 48.6 in the previous month to 46.7, indicating a recessionary environment.
In the US, both headline and core inflation rose by +3.7% and +4.3% year-on-year, respectively. In the Eurozone, annual inflation remained at elevated levels with an increase in both the overall and core inflation rates of +5.2% and +5.3% respectively.
Energy and Transportation
The price of Brent oil continued to rally from $ 87 to a new yearly high of $ 95 per barrel at the end of September as expectations of tighter supply outweighed worries about weaker economic growth and rising US crude inventories. According to the International Energy Agency (IEA) Saudi Arabia and Russia’s extended output cuts will result in a market deficit in the fourth quarter of 2023. As a result, the STOXX 600 Oil and Gas Index gained +5.6% in September.
Transportation segments recorded a mixed performance. The Dow Jones Transportation Index fell by -2.4% and the US Global Jets Index fell by -9.3%. On the other hand, the Russell 2000 Marine Transportation Index increased by +6.4%.
The dry bulk segment has shown strength throughout the month. Capesize rates increased from $ 9k/day to $ 20k day at the end of the month. In the container freight market, the SCFI (Shanghai Containerized Freight Index) decreased by -10% compared to the previous month. The SCFI index is down -53% year-on-year. Crude oil tanker (VLCC – Very Large Crude Carrier) rates increased from $ 13k/day to $ 24k/day at the end of the month, whereas product tanker rates have remained well supported throughout the month. VLGC (Very Large Gas Carrier) rates have increased to record levels of around $140k/day at month-end.
As jet fuel prices are up by about 50% since end of June Q3 earnings expectations are severely pressured. Against this backdrop, airlines are managing much higher wage costs, punctuated by pilot pay increases of around 20% this year. At the same time fares appear to be softening.
Fund Performance
The overall performance of the fund was positive.
The fund benefited from long positions in the product and crude tanker segments. Additionally, short position in other transportation sectors were contributing positively. On the other hand, the long dry bulk exposure and hedging positions in the oil and gas sector were negative contributors.
For more information you can find our latest Fact Sheet – September 2023.
Seahawk Investments GmbH
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