The market environment in June was not much different from that in May - inflationary concerns and heightened interest rate expectations continued to dominate market events. This translated into a difficult trading environment across most asset classes.

In the currencies markets, the US dollar rallied against most currencies in the first half of June (it strengthened by 3.5 basis points (bps) to 1.248, against the Euro) on the back of higher US interest rate differentials, weakening emerging market currencies, and investors' flight to quality.

However, following a 25 bps hike in the short term interest rates by the Fed towards the end of June, accompanied by dovish comments regarding an end to the monetary tightening, the dollar rally lost steam.

In the energies and metals markets, declining inventory levels and rising demand (and in the case of oil, continuing tensions in Iran) spurred a healthy rebound in energy and metal prices during the middle of June, after registering significant falls early in the month.

Equity long/short (-1.1%), CTA (-1%) and macro (-0.9%) strategies were the most adversely affected by the month's volatility, all underperforming the composite Eurekahedge Fund of Funds Index (0.8%).

Multi-strategy funds did only marginally better than the index (-0.7%) as the scope of the volatility negated the advantages of diversification (there was in fact volatility in the volatility index, VIX, as it jumped from 16.4 at the beginning of June to 23.8 mid-month and dropped to 13.1 by the month's end).

Market-neutral and opportunistic strategies, on the other hand, had a largely flat month - arbitrage funds lost 0.2% while event driven funds gained 4 basis points, the latter benefiting from a still active M&A scene.

In closing, inflationary fears and volatility were the key market afflictions of the month. Global markets are looking towards the US for guidance, although global emerging markets are now much better positioned in the event of a slowdown in the US economy, fundamentally speaking.

If the Fed's less hawkish statements towards the end of June are anything to go by, this could help liquidity return to the equity markets and drive out the current volatility.

For the latest June 2006 returns for the Eurekahedge hedge fund and fund of
funds indices please visit