- Donald Trump won the presidential election, and the Republicans secured control of both chambers of the US Congress, pledging to reshape the domestic and global order.
- As China braces for Trump tariffs, Beijing continues its new approach to stimulus measures as the central government takes on greater responsibility for driving growth.
- Weak private activity surveys in the eurozone strengthened market expectations on rate cuts by the European Central Bank (ECB). The Trump election and the solid US expansion weighed on the euro.
- The HESPER FUND – Global Solutions rose 2.3% in November, as US equities and the strong dollar rallied.
- The HESPER FUND refined its portfolio allocation. Net equity exposure was cut to 33% and the overall duration stance was sliced to 2.8 years. In FX, the fund reduced its long exposure to the Norwegian krone to 16%, raised its US dollar exposure up to 40% and cut its exposure to the British pound to 5% short against the US dollar. Gold exposure was reduced to 6% as Trump’s victory raised hopes of a truce in the Russia-Ukraine conflict.
29.11.24 - Emboldened Trump returns to power
HESPER FUND – Macro Scenario: Trump 2.0 brings a new landscape
The US economy has continued to expand at a solid pace in the third quarter, largely powered by a broad-based increase in consumer spending as inflation continued to cool. This is the backdrop against which Trump returns to power with an ambitious and aggressive agenda to make deep changes both domestically and abroad. Buckle up and ride the markets to the beat of the Trump administration!
All countries should now keep an eye on what is going on in the US. This is not a minor change, especially for the major US trading “partners” such as Canada and Mexico, who are already taking notes. “Strategic decoupling” from China is the new mantra in Washington.
Meanwhile, the world economy is bound to a soft landing amid worrying geopolitical developments, concerns about the new US stance on trade and ongoing wars in Ukraine and the Middle East.
Monthly performance and current positioning
The HESPER FUND – Global Solutions (T-6 EUR) gained 2.3% in November, bringing YTD performance to +6.79%. This was supported by US equities and the dollar rally. Total assets increased to 57 million euro. Volatility over the past 250 days ticked down to 6.3%. The annualised return since inception accelerated to 3.75%.
During the month, the fund shortened duration to 2.8 years and cut equity exposure to 33% last week as Russia’s war against Ukraine entered a dangerous new phase. The fund continued to trade actively in the FX space. We are maintaining an arbitrage in the forward market between the US dollar and the Hong Kong dollar (HKD), opened when the HKD traded at the highest level allowed by the currency board system against the greenback. Remember that this transaction artificially elevates the overall exposure to the dollar to 121%, where it would otherwise be 40%.
The breakdown of November performance (+2.3%) was +0.46% fixed income instruments, +0.55% equity futures, -0.37% commodities, +1.76%% currencies and -0.10% fees and expenses.
Outlook: all eyes on the US economic policy
The world is bracing itself for a new US administration that wants to use instruments of economic warfare to achieve its geopolitical goals. This new scenario has increased risks and uncertainties for the world economy and financial markets.
We remain bullish on the US dollar, as trade tariffs and fiscal policy are the main transmission mechanism that will foster the relative strength of the US economy relative to the Eurozone. However, we remain on alert as we see challenging times for the Fed to do its job under the Trump administration. The nomination of Scott Bessent as Treasury Secretary could undermine the Fed’s independence, which would be negative for the dollar.
The outlook for equities remains constructive in the short term as the Fed will continue its easing cycle in the near term, financial conditions are not as tight as we thought and Trump is associated with pro-business policies. For bonds, the outlook is highly uncertain as Trump’s policies could risk accelerating growth and reigniting inflation.
*HESPER FUND - Global Solutions is currently only authorised for distribution in Germany, Luxembourg, Belgium, Italy, France, Austria and Switzerland.