General Market Review
The global stock market fell in May in USD-denominated terms. On the one hand, resilient consumer spending trends, favorable quarterly earnings, and signs that the Federal Reserve is nearing the end of its fastest tightening cycle on record were supportive for the market. On the other hand, slowing growth trends in China and ongoing U.S. recession fears led to a deterioration in market sentiment.
Throughout the month there was a strong deviation between sectors. Investors favored growth over value.
The Federal Reserve (Fed) raided interest rates by another 25 basis points. Both the US CPI Index (Consumer price index) and US Core CPI Index (excluding food and energy) rose 0.4% month-on-month.
Euro area annual inflation rate increased by 7.0% in April 2023, up from 6.9% in March, whereas Core CPI (excluding food and energy) by 5.6% down from 5.7% in the previous month. The European Central Bank (ECB) raised all three of its key interest rates by a further 0.25%.
In this environment the US 10-year yield increased from 3.42% to 3.63%, with the two-year rising from 4.01% to 4.40%. Germany’s 10-year yield decreased slightly from 2.31% to 2.27%.
Energy and Transportation
Manufacturing activity in China, the world’s second largest economy and top crude importer, contracted in April amid lower domestic demand. The Caixin manufacturing purchasing managers’ index slipped to 49.5 in April from 50.0 in March.
Moreover, concerns over the health of the US banking sector led to an initial drop in risk assets. Throughout the month the price of Brent Oil fell from $79.8 per barrel at the beginning of the month to $72.7 at the end of May.
After a positive performance in the previous month energy stocks have posted a negative return in May. The Stoxx 600 Oil and Gas decreased by -6,8%.
On the other hand, in the transportation sector results were mixed. The Dow Jones Transport Average decreased by -1,9% in April. The shipping subsectors sold-off whereas the aviation stocks were resilient. The Russell 2000 Marine Transportation fell by -10.2%, whereas the US Global Jets Index increased by +1.1%.
Within the marine transportation segment Capesize-Rates decreased from $ 19k/day to $10k/day by month end. In the container freight market, the SCFI (Shanghai Containerized Freight Index) was down by 6% versus four weeks ago and down by 77% year-on-year. Crude tanker rates (VLCC – Very Large Crude Carrier) dropped from $39k/day at the beginning of the month further to $25k/day at month end. VLGC rates have averaged $ 75k/day versus an average of $ 53k/day in the previous month.
In the aviation sector airlines with exposure to Europe and Asia are expected to see stronger revenue in the second half of 2023. Fares to Asia are expected to remain at elevated levels. Capacity to and from Europe looks set to extend its strong recovery in the second half of 2023. Fares have remained resilient, indicating strong demand even as capacity rises considerably.
Fund Performance
The overall fund performance was negative in the USD- and slightly negative in the EURO-denominated share classes.
The fund was able to benefit from long positions in the aviation sector. Short positions in the oil and gas sector, as well as in the freight services sector were able to contribute positively. On the other hand, long positions in the shipping subsegments dry-bulk as well as crude and product tanker shipping had a negative effect on the monthly performance result. Given the sell-off in selected marine shipping stocks individual shipping names are now trading at significant discounts to their Net-Asset-Values.
For more information you can find our latest Fact Sheet – May 2023.
Seahawk Investments GmbH
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