Tudor sees first global monetary policy divergence since 2010
Bloomberg News
January 21, 2014
Tudor Investment, the $13.7 billion macro hedge-fund firm run by Paul Tudor Jones, said global central bank policies will diverge this year for the first time since 2010.
Tudor anticipates the U.S. and U.K. will raise interest rates earlier than expected, while rates will be cut in the euro area this year, according to a Jan. 15 weekly note to investors written by five members of the firm's research team.
"We believe that 2014 will be a year of contrasts when it comes to the outlook for monetary policy across the major developed markets," Filippo Altissimo, global head of research at Tudor, and four colleagues wrote in the note. "For the first time since 2010, there will likely be an unfolding divergence in monetary policy."
Betting against Canadian interest rates, as opposed to those in the U.S., may offer "better risk-reward" amid positive economic activity in both countries, according to the note. The Greenwich-based firm is finding near-term value in wagering against U.K. fixed income, "especially around unemployment releases," as it expects the country's rates to rise, while betting on European monetary union debt.
Macro funds, which wager on macroeconomic trends by buying and selling stocks, bonds, currencies and commodities, have struggled to beat other strategies since 2010 as managers such as Louis Moore Bacon cited central bank action as a factor distorting markets. Funds in the strategy on average returned a cumulative 4 percent in the past four years, while those across all strategies climbed 15 percent, according to data compiled by Bloomberg.
Fund returns
The Tudor BVI Global fund climbed 14 percent last year, a person familiar with the matter said, and 6.3 percent in 2012.
Tudor expects an increase in the federal funds target rate, now at a range of zero to 0.25 percent, in the summer of 2015, according to the note. Economists anticipate the gauge will rise to 0.5 percent at the end of that year's third quarter, according to the median forecast of 59 people in a Bloomberg survey.
An improving U.S. economy is underpinning inflation, limiting firings and lifting consumers' moods, brightening the outlook for growth at the start of 2014. Policy makers began reducing monthly bond purchases by $10 billion in January to $75 billion, citing an improving job market. Still, Federal Reserve Bank of Chicago President Charles Evans, who has supported record stimulus, said Jan. 15 that the central bank's slowdown should be seen as a shift in emphasis toward keeping interest rates near zero for a longer time, partly because of still-low price pressures.
Inflation may be the spark persuading the Bank of England to raise rates in the fourth quarter, according to the Tudor note. Bank of England Governor Mark Carney will change forward guidance next month, according to economists, as they forecast that unemployment will hit a key level far earlier than previously anticipated. More than 60 percent of respondents to Bloomberg's monthly survey said Carney will refine the policy when the BOE publishes its quarterly Inflation Report on Feb. 12. Almost one-third of economists said the jobless rate will fall to 7 percent in the first half of the year, a juncture that will require Carney to consider raising borrowing costs.
New Zealand may increase interest rates in March because of "robust business surveys, rapid house price appreciation, strong output growth prospects and a surge in terms of trade," according to the Tudor note. Reserve Bank of New Zealand Governor Graeme Wheeler last month abandoned his earlier stance that policy tightening could wait, saying interest rates may need to rise to 4.75 percent by the first quarter of 2016 from a record-low 2.5 percent.
Tudor anticipates a Norway rate increase in the second half of the year.
