World stock indices ended December on a high note, capping a bullish year for equities in 2006. The Dow’s record high (+16.7% for the year) was eclipsed by even greater gains on European bourses including a 30% gain in Spain and 20% plus gains in Germany and Poland. In Asia, Hong Kong’s Hang Seng index finished the year with an advance of 34.9%. Major bond markets in the US and Europe continued to drift lower as the ECB raised rates while traders remained convinced the Fed will not lower US rates. Meanwhile, the Yen lost ground against major currencies as Japanese investors searched for higher yields abroad. Energy markets, which hit highs earlier in the year but then declined, continued a bearish trend in December as warm temperatures in the northern hemisphere forced values sharply lower.
FLAT RESULTS FOR THE FTSE 100
Our Trading Systems delivered modest results this month in the UK FTSE 100 Index, which rose 2.2% in December. Overall, the FTSE had a disappointing year, registering a 10.6% increase but underperforming most other major equity markets.
MAJOR GAINS FROM NATURAL GAS TRADING
Superfund Trading Systems registered strong gains in December from short positions in the natural gas market. The Feb ’07 Nymex Nat Gas contract lost 29.1% as weather forecasts showed that unusually warm weather will continue into January across the northern hemisphere, thus relieving concerns about inventories.
A GOOD MONTH FOR EUROPEAN INTEREST RATE FUTURES
Our Trading Systems showed good results in the LIFFE 3 month Euribor contract. Benchmark European short interest rate futures continued to trend lower throughout the month on improving economic results and growing inflationary worries. Alhtough the ECB pushed through a sixth rate hike of the year to 3.5% and signs pointed to possible hikes towards in 2007, futures continued to move lower after ZEW and IFO survey reports showed increased German business and investor confidence.