Eden Rock Capital Management LLP: Market Commentary – January 2012

Global markets started the year with strong gains across most major indices, boosted by continued improving economic and employment statistics in the US. The S&P 500 gained 4.36%, whilst the Dow Jones was up 4.95%. The Nasdaq composite index was one of the best performers in the major markets with a gain of 8.35%. In Europe, sovereign and banking system liquidity concerns were temporarily allayed by the ECB’s long term refinancing facility and equity markets were higher in most countries. The Eurostoxx 50 gained 4.32%, whilst the Dax and CAC were up 9.5% and 4.39%, respectively (this despite France losing their AAA rating mid-month). The FTSE was relatively subdued rising just under 2% on the month.

Increased risk appetite was also evident in credit spreads which tightened significantly during January, with the iTraxx crossover series 15 falling from 699.65 to 564 and the newer series 16 also tightening from 754.8 to 619.65. Investment grade spreads also narrowed on the month. Volatility as measured by the VIX index fell 4 points from 23.4 to 19.4.

In bond markets, US treasury yields were mixed, with short term yields on 3 & 6 month bills increasing by 4 & 3 bps, respectively (to 0.05% & 0.07%) and the long end of the curve saw the 30yr yield pick-up 5bps on the month to close at 2.94%. 5 and 10 year yields were lower, however, with the 5 year dropping from 0.83 to 0.7% and the 10 year down 8bps to 1.80%.

There was a significant rebound in some commodities following the rout in December. Gold was up over 11%, whilst silver gained in excess of 19% as metals generally enjoyed a strong start to the year. Energy commodities fared less well with crude oil marginally lower closing at just under $99 per barrel, whilst natural gas futures continued to be volatile, falling by over 16%.

Eden Rock Capital Management LLP