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Transitory Inflation and Positive Economic Data | Flow Traders Investment Competition | Week 29


Equities yielded mixed results in a volatile trading week. The S&P 500 ended a bit lower, and Nasdaq also gained little ground. U.S. Treasury yields were roughly unchanged for the week. The STOXX Europe 600 Index ended the week 0.43% higher. Major indexes were mixed: Italy’s FTSE MIB Index advanced, while the DAX Index and the CAC 40 Index were little changed. The FTSE 100 Index fell 0.36%. Japan’s stock markets finished the week higher, with the Nikkei 225 Index returning 0.83% and the TOPIX Index up 1.13%. The benchmark Shanghai Composite Index shed 0.1%, while the large-cap CSI 300 Index, whose growth stocks have fallen in recent weeks, added 0.5%.


The Federal Open Market Committee’s (FOMC) meeting in late April offered insight on the economy and inflationary pressures. Main conclusion that investors inferred from the minutes is that the Fed hints it may discuss tapering of asset purchases. FOMC members  also acknowledged the potential for inflation to run “temporarily” above their 2% target due to “supply chain bottlenecks” that would fade away eventually. Also, ECB officials reiterated that an increase in inflation will be transitory.  


On the economic front, the preliminary release of the IHS Markit Flash U.S. Composite PMI Output Index shows a reading of 68.1 in May, compared to 63.5 in April. Note that a reading above 50 implies expansion in economic activity. Similar results were also posted in the Eurozone. The flash composite PMI reached 56.9 in May, an improvement from the 53.8 registered in the preceding month. The services sector index climbed to 55.1 from 50.5. 


However, in Japan. Economic data was weaker. Japan’s economy shrunk by an annualized 5.1% in the first quarter, a sharper contraction than expected. The decline was mainly due to a drop in private consumption as coronavirus containment measures curbed spending on clothing and dining out. On the other hand, Japan’s exports grew the most since 2010 last month, rising by a higher-than-expected 38.0% from a year earlier and lending support to a trade-led recovery. Sales of transport equipment soared, boosted by motor vehicles and cars, while exports of machinery surged, led by power-generating machines. Lastly, in China, economic data were mixed. Retail sales growth slowed down to 4.3% in April  compared to March retail sales growth of 6.4%. A resurgence of coronavirus cases in several Chinese provinces has raised worries that COVID-19 still has potential to stifle a recovery in household consumption. 


Turning to the investment competition. Merx leads the pack, with a B&R M2 of 24,58%, closely followed by Conquistadores Capital with a B&R M2 23,23%. The battle between these two giants is intensifying as we get closer and closer to the end of the competition. On the other side of the spectrum, Vico and the Quants of Minerva remain the largest losers. Rankings were little changed, but some notable shifts are worth mentioning. Invicti, this week, has the largest return, whereas Aevitas somehow managed to lose 6.65%, thereby losing 14 spots. 

Meanwhile in the second Investment Competition, Das Kapital still remains supreme with an M^2 of 9,65%, followed by Aurelia with an M^2 of 0,30%. New Rotterdam Investments gained the most in terms of absolute returns with a gain of 1,09% this week, although they still have a long journey ahead of them if they want to erase their total losses of 27,33% to date. Only time will tell whether Das Kapital will ever be unseated!


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