Flow Traders Investment Competition: Political Uncertainty in Italy

Government bond yields rose around the globe this week, as data pointed to stronger economic growth and oil prices climbed to multi-year highs. U.S. 10-year treasury yields and Canadian government bond yields jumped to their highest levels since 2011 and 2014, respectively. Stocks in Canada and in most of the European markets advanced; but as interest rates rose, the resulting strength of the U.S. dollar and the implied higher inflation risk pressured stock valuations in the U.S.

U.S. stocks struggled this week despite signs of accelerating economic growth – the S&P 500 was down slightly. Investors showed signs of worry over higher interest rates and the stronger U.S. dollar, which climbed to its highest level year-to-date as opposed to other major currencies. The so-called “bond proxies” (real estate, utilities, telecom services) dropped in the face of higher bond yields, while technology and financials were also in the red. The energy and materials sectors were the top gainers. The geopolitical news was a mixed bag, with the hope of progress on NAFTA and signs that President Trump was looking to de-escalate trade tensions with China on the one hand, and renewed uncertainty about North Korea on the other hand.

Once again Italy stood out on the downside among major European equity markets. Italian stocks dropped as two populist parties forged a new coalition government. The heightened risk to euro-area integration also pushed the euro currency to a five-month low. Weaker currencies helped stocks in Germany, France and in the United Kingdom all advance (the British pound, weighed by Brexit uncertainties, dipped alongside the euro to its lowest level this year.)

The Japanese yen similarly retreated to a four-month low, and stocks there were further pressured by a report that the country’s economy shrank in the first quarter of 2018. It was the first drop in GDP in over two years and snapped the longest growth streak in 28 years. Japan, the only U.S. major ally to not have received an exemption from President Trump’s recently announced tariffs, was also reported to be considering retaliatory tariffs against the U.S.

CFQ was the biggest riser this week moving up four spots in the competition thanks to their investment in oil. On the other hand, Next Generation was the biggest loser this week falling eleven spots, primarily due to their investment in a long turbo: Cisco. Rising Investments have solidified their lead and it seems like the rest of the competition will have a difficult time surpassing them in the remaining 1.5 months, even with superior weekly returns of 3.79% as was earned by Primus, which is currently sitting in second position.

Written by Sebastian Olichwier