November 2019 Commentary
The tensions between the U.S. and China persisted in the month of November, namely triggered by the decision of President Donald Trump to sign two bills into law in support of Hong Kong protests that led China to threaten to retaliate. The protests, along with Trump’s decision to sign those measures, came as a surprise as both parties were willing to close-off on a phase one deal imminently, in order to halt the introduction of additional tariffs as the December 15 deadline continues to loom over financial markets.
From the macroeconomic front, U.S GDP for the third quarter surprised as it grew at 2.1 percent from a consensus of 1.9 percent, as consumer spending continues to be supportive for economic growth. Leading indicators such as the manufacturing PMI increased to 52.6 from October’s 51.3 levels, while beating consensus levels of 52.2. From the employment front, the number of Americans filling for unemployment benefits decreased by 15 thousand to 213 thousand.
Looking at U.S. credit markets Treasury Yields reached 1.7758 percent from the 1.688 percent levels in October, while highs of 1.944 percent were tested throughout the month, as trade war fears were eased on tweets from Donald Trump that negotiations are going very well. U.S. HY Spreads tightened by 16bps from 430bps to 414bps due to improved economic sentiment and a relatively more risk-averse mode, in line with gains being registered by equity markets. The CC Global High Income fund, maintained its positive pace with a 0.26 percent gain and registered gains in line with its comparable benchmarks. In the month, the Manager opted in participating in the newly issued investment grade rated Braskem bond, the petro-chemical company.
Going forward, the Manager is of the view that the month of December should continue to be supportive for credit markets and the CC Global High Income should close-off with another good year, with the strategy throughout the year being the preservation of its risk-adjusted metrics.
