Following flat performance in December (-0.6%), global hedge funds performed better in January despite the ongoing global economic turmoil, with the Eurekahedge Hedge Fund Index up 2.7%. By comparison, the S&P 500 was up 6.2% and the Dow Jones was up 2.8%, illustrating that hedge funds were wrongly positioned for a continued bear market at the start of 2023. Managers underestimated the improved equity market during January and the impact of slower central bank rate rises.
During January, US inflation only fell by 0.1% to 6.4%, as the Federal Reserve’s 2% inflation target remains challenging in the near-term even as small rate rises and similarly tight monetary policy from other central banks weighed on global growth. In Europe, as the anniversary of the Ukraine invasion approached, there was a slight decrease in inflation to 8.5% and an uptick in the euro-dollar exchange rate as growth in private sector activity in the Eurozone eased fears of a deep recession. Furthermore, the mild winter conditions and natural gas market stability helped confound more pessimistic investors even as the conflict and punitive Russian sanctions became further entrenched.
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