Market Participants Price in Rate Cuts

Market participants spent most of December pricing in heavier rate cuts by the Federal Reserve and other central banks in 2024. The result was a sharp decline in global bond yields, which allowed the Japanese yen to shine bright as interest rate differentials were expected to narrow to its benefit over the coming year.

Another star performer was the euro, with the steady decline in energy prices helping to boost the oil-importing currency. The US dollar was the worst performer, caving under the pressure of bets for imminent Fed rate cuts and the broader rally in riskier assets. With the dollar on the ropes and real yields on the decline, it was a great month for gold prices, which briefly reached new record highs.

December being the last calendar month of the year, bears a heightened interest with regards to the solid return delivered by the Fund. Most gains were realised early in the month and retained throughout. Furthermore some days towards the end of the month also contributed positively to the overall return.

As commented previously, we believe that we shifted away from the mean reverting behaviour of mid 2023 to a healthier market environment and December is such an example, with higher market volatility and decisive market moves, allowing the Fund to capitalise gains. Given the current economic and geopolitical environment we expect these market conditions to persist as we enter 2024, potentially having a positive impact on the return profile of the IXI strategy in the months to come.

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