Etikett: Agricultural commodities

Commodity investors look optimistically beyond Brexit

ETF Securities Commodity investors look optimistically beyond BrexitCommodity investors look optimistically beyond Brexit

Commodity Monthly Monitor – Commodity investors look optimistically beyond Brexit

Your reference guide to commodity markets. Includes the latest outlook for each commodity sector and major developments for individual commodities.

June/ July 2016

Summary

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Although the uncertainty surrounding the EU referendum is dominating sentiment and weighing on cyclical commodity prices, markets are predicting that elevated volatility levels will fade. Under more normal market conditions, investors will return their focus to the strength of fundamental commodity drivers. Currently, investors are generally positive on the outlook for cyclical commodities, with futures market positioning showing the most optimism since 2011. Nonetheless, central bank policy remains the main question mark for investors. The lack of clarity over the path for US interest rates is favouring defensive commodity allocations for portfolio hedges. Low/negative real interest rates are likely to continue their trend lower in the near-term, with some signs of emerging inflationary pressure. The global recovery is expected to continue, fuelled primarily by US and Chinese growth. Rising activity in the world’s two largest economies should keep energy and industrial metals sectors supported, as demand begins to bite into the abundant supply of recent years.

Agricultural commodities have continued to benefit from a global supply shortage from the US’s main competitors. Uncertainty on the potential impact of La Niña on this year’s crop yield is adding upward pressure on prices for the time being. The US NOAA estimates a 75% chance for La Niña to develop by this winter.

Oil rose to US$50/bbl as outages crimped on supply. However, oil prices face temporary resistance as drilled but uncompleted wells (oil fracklog) in the US threatens to add new supply. Given high depletion rates, we expect this source of price weakness to be temporary.

With the exception of copper and lead, industrial metals posted gains over the past month as a weaker US Dollar helped offset subdued Chinese economic data. The extreme pessimism towards copper evident from the sharp deterioration in net short speculative positioning seems overdone and fundamentals remain supportive of prices.

Gold buoyed by policy mistakes. The potential for inflation to overshoot in the US and the reticence of the Federal Reserve to continue to tighten monetary policy is providing a supportive environment for gold. Further policy mistakes will only enhance the popularity of gold in a negative real rate environment.

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ETF Securities Research team
ETF Securities (UK) Limited
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This communication is only targeted at qualified or professional investors.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Policy error and cyclical recovery to benefit commodities

Policy error and cyclical recovery to benefit commodities

Commodity Monthly Monitor – Policy error and cyclical recovery to benefit commodities

Your reference guide to commodity markets. Includes the latest outlook for each commodity sector and major developments for individual commodities.

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Summary

•    Agricultural commodities post strongest monthly returns within the complex.

•    Industrial metals saw mixed performance last month despite a stabilisation of Chinese economic activity.

•    Oil has had a volatile month.

•    Palladium to benefit from miner capex cuts and demand for gasoline cars.

The US Federal Reserve (Fed) has made a policy mistake. After raising rates for the first time in nine years, the Fed has held back from further hikes in 2016, bowing to market tantrums. The Fed is struggling to focus on the strength of domestic fundamentals such as the strong labour market or increasing inflationary pressures and is reluctant to move too far from other central banks that are still in easing mode. Consequently central bank policy remains a supportive influence on gold.

Along with the Swedish Riksbank, Danish & Swiss National Bank and the Bank of Japan, the European Central Bank (ECB) has adopted a policy of negative interest rates. We argue that NIRP, whether in nominal or real terms, is positive for gold prices. Historical data suggest that there is a relationship between negative interest rates and the gold price. Gold has risen more than 15% year-to-date and is likely to rise further as US inflation increases. A global economic recovery is likely to provide a tailwind for industrial precious metal prices (silver, platinum, palladium).

Part of the reason that these industrial precious metals have been falling since 2011 is due to China’s moderating demand, as it adjusted to a slower pace of economic growth. However silver, platinum and palladium have started to recover this year, rising 17%, 18% and 17% respectively in the last 3 months and we expect demand for these metals will likely continue as China’s industrial output appears to have found a base. Furthermore, these industrial precious metals have been in a supply deficit during the past three years. 80% of platinum and close to 40% of palladium are produced in South Africa and as the Rand depreciation abates and miners cut back on activity, supply deficits for these metals are likely to grow.

Agricultural commodities post strongest monthly returns within the complex. Corn and soybean hit multi-month highs, driven by short covering as concerns grew about the weather phenomenon, La Niña, materialising ahead of the US growing season. Lean hog futures rallied on seasonally improving demand as warm weather ushers in increased outdoor grilling.

Industrial metals saw mixed performance last month despite a stabilisation of Chinese economic activity. Sentiment reversed course for industrial metals last month, with speculative positioning unwinding. More negative sentiment belies a continued tightening in most industrial metals markets.

Oil has had a volatile month. Prices rose as investors expected a coordinated production freeze and then fell as no such deal could be delivered. A short-lived oil worker strike in Kuwait added further volatility. We expect declining non-OPEC production and rising global demand to lend support to prices.

Palladium to benefit from miner capex cuts and demand for gasoline cars. While gold, silver and platinum have rallied strongly since beginning of the year, palladium is lagging behind. We believe the metal offers a catch-up potential supported by further capex cuts and increasing global demand for gasoline cars.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”). ETFS UK is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

This communication is only targeted at qualified or professional investors.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Metals to perform on weaker USD and rising rates

Metals to perform on weaker USD and rising rates

Commodity Monthly Monitor – Metals to perform on weaker USD and rising rates

Your reference guide to commodity markets. Includes the latest outlook for each commodity sector and major developments for individual commodities.

Summary

Sentiment toward industrial metals took a leap forward.

The price of the gold driven higher on the lack of follow-up from the Fed.

Oil major producers meeting postponed but not cancelled.

Majority of agricultural commodities post strong gains.

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Summary

The recent decision to keep rates on hold by the US Federal Reserve (Fed) has saved the market from shock as the Fed Fund Futures market indicated only a very small chance of the central bank making a move. The Fed’s so-called “dot-plots” now indicate that the policy makers only expect to raise rates twice this year (down from four) and the market has shifted it expectations out to September for the next move. Recent economic data, particularly strong wage growth (accounting for the February calendar quirk) and payroll data justify more hikes and sooner. The US dollar is unlikely to respond with strength when rate hikes occur as the US dollar is perceived to be the most over-crowded trade according to recent fund manager surveys. Anticipation of the rate hike has been pushing up the USD for many years. Furthermore, in rate rising environments, contrary to popular belief, the USD dollar typically sells-off. This we believe is due to investors attempting to gauge if the first rate hike was correctly timed, as it takes a while for the economic data to roll-in to make a judgement and therefore markets tend to be in a state of limbo/fear. In this environment of a weaker USD and rising interest rates, improving economic fundamentals are likely to be beneficial for many cyclically exposed commodities. Industrial metals, which are likely to be in a supply deficit this year, trade well below marginal cost. This subsector looks to be forming a technical floor whilst demand in China has remained surprisingly resilient in recent months.

Sentiment toward industrial metals took a leap forward, with speculative positioning and prices rising across the complex. Investors appear to be paying heed to firmer fundamentals, with supply deficits expected for zinc, copper and nickel this year. US dollar depreciation and a loose policy setting should help the industrial metals rally continue.

The price of the gold driven higher on the lack of follow-up from the Fed after it embarked on a rate tightening cycle in December 2015. Investors fear that the US central bank is committing a policy error after it downgraded the number of times it expects to raise rates this year. Core inflation remains robust and real interest rates remain low, a recipe for strong gold prices. A loose policy setting helps the more industrial precious metals like platinum and palladium as auto sales will be supported.

Oil major producers meeting postponed but not cancelled. A 40% rally in oil prices indicates that expectations ahead of the original meeting were very positive. Despite the meeting being postponed to mid-April and Iran refusing to participate until its production is back to pre-sanction levels, crude oil production and rig count in the US remain at their lowest since end of 2014, lending support to oil prices.

Majority of agricultural commodities post strong gains with the exception of cotton. Reduced supply from Brazil and India supported sugar prices higher. Weak cotton imports into China dented the demand outlook for cotton sending prices lower.

(Click to enlarge)

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”). ETFS UK is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

This communication is only targeted at qualified or professional investors.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Agricultural Commodities Rally

Agricultural Commodities Rally

Agricultural Commodities Rally – ETF Securities Commodity ETP Weekly

•    Inflows into long oil ETPs highest in 14 weeks, as investors return to bargain hunting.

•    Profit-taking led to US$36.0mn outflows from long wheat ETPs.

•    Long nickel ETPs see largest inflows since November 2014 on the back of bargain hunting.

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The ‘No’ campaign in the Greece’s referendum yesterday received more than 60% of votes, emboldening the Greek government’s stance to reject its creditors terms. Failure to make progress in debt negotiations elevates the risk of a default on the €3.5bn that is owed to the ECB on 20th July. A default on that bond would almost certainly lead to the emergency liquidity assistance (ELA) being switched off and throw Greek banks into an untenable position. Gold has surprisingly not reacted to the events but that could change as worst-case scenarios crystalize. Agricultural commodities have clearly been outperformers in the past week. As the strengthening El Niño weather pattern changes crop growing conditions, we believe agricultural commodities will continue to offer investors strong opportunities.

Inflows into long oil ETPs highest in 14 weeks, as investors return to bargain hunting. A rise in rig counts in the US, the first since December 2014, drove WTI crude oil prices down 4.8%. Brent fell by 1.8%. As we have long argued, the rally in oil prices since March has been premature and has the potential to delay the supply cuts the industry needs. The increase in oil rigs is a confirmation that that incentive to cut production has waned. The necessary price decline should see that production is indeed pared back over the coming months. The potential lifting of sanctions against Iran should also weigh on oil prices in the near term. While a July 1st nuclear deal deadline passed with no agreement, a new deadline of 7th July has been set and talks are continuing. We expect high cost conventional oil producers to suffer the greatest loss in market share when prices fall, setting the scene for the nimble US shale oil industry to rebuild in due course. ETF securities long oil ETPs received US$49.3mn of inflows last week.

Profit-taking led to US$36.0mn outflows from long wheat ETPs. Wheat rallied close to 18% in 4 days, before paring gains to 10.1% for the week. A USDA report confirmed that wheat acreage planted this year will be lower than last year. The market took this very positively, although gains were pared once it was acknowledged that planting intentions (survey of farmers in March) had actually called for deeper cuts to growing. The profit-taking led to the largest weekly outflows in wheat ETPs since their inception in 2006. We believe that the strengthening El Niño weather pattern threatens to reduce global wheat production this year and opens further opportunities for investors to go long. El Niño tends to make the Asian sub-continent around India and Australia more dry than usual, which would crimp supplies from the large producing countries. Although the monsoon in India had gotten off to a brisk start in June, last week rain had slowed to below normal levels, the typical hallmark of the El Niño suppressing the monsoon.

Long nickel ETPs see largest inflows since November 2014 on the back of bargain hunting. Nickel fell 3.9% last week to a six-year low, mainly driven by technicals after the nickel breached the $12,000 psychological threshold. We believe that fundamentals will reassert. Declining nickel pig iron production in China, stronger demand from the European stainless steel market and reduced nickel ore availability will be key catalysts. Long nickel ETPs saw US$8.8mn inflows.

Key events to watch this week. Investors will continue to be distracted by the events unfolding in Greece after the ‘No’ vote in the referendum yesterday. The Australian Bureau of Meteorology will provide an El Niño update tomorrow.

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

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Volatility Reigns as Policymakers Vacillate

Volatility Reigns as Policymakers Vacillate

ETFS Multi-Asset Weekly Volatility Reigns as Policymakers Vacillate

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Highlights

Agricultural commodities get boost from weather.

China A-shares investors waiting for MSCI.

USD weakness unlikely to last.

Volatility has been a pervasive force not only across asset classes, but across regions, as uncertainty over the global economic recovery lingers. Not only has ECB president Draghi warned investors to be prepared for more bond market volatility, but IMF Head Lagarde has muddied the waters by urging the US Fed to delay rate hikes despite an improving outlook because of the potential consequences that rising volatility and a strong USD could have. Indeed EM have not been excluded, with Chinese equities rebounding from recent slump, as optimism over the potential inclusion in the MSCI indices rises ahead of this week’s decision..

Commodities

Agricultural commodities get boost from weather. Coffee topped commodity gains, as the potential for crop damage during the Brazilian winter sparked fears of lower harvest. Stocks-to-use are at two year lows, so we expect adverse weather conditions to fuel the current rally. In the grains space, wheat also posted a better than 7% gain for the week, as hard winter wheat quality dipped and the threat of rainfall potentially delaying harvests. Meanwhile, as expected, OPEC maintained the status quo, keeping oil production unchanged. Clearly they are playing the long game. And investors anticipated the result, with managed money positions in ICE Brent crude futures have dropped by over 35% to the lowest level seen since early April. With US rig counts stabilising, commercial crude stocks have fallen for the fifth consecutive week. However, stocks remain significantly elevated compared to longer term averages and there is still scope for downside in crude prices.

Equities

China A-shares investors waiting for MSCI. After a sharp downturn for Chinese equities, a 7.5% surge back to over 7-year highs occurred last week, as investors betted that MSCI would decide (on Tuesday) to include China A-shares in its benchmark EM index. Such a move would be tempered and managed, with initial mainland allocations capped at just over 1%. Nonetheless, inclusion would see an influx of additional foreign funds, helping support the current rally. European equity slump continues on Greek concern. The threat of a Greek default remains the one factor holding back a concerted continuation of the rally that European equity benchmarks began in 2015. Despite bundling its IMF payment until end June, European equity volatility will remain until some clarity of whether a Greek debt agreement can be reached and the scope of such a deal.

Currencies

USD weakness unlikely to last. Volatility certainly has not been absent from currency markets, as policymakers prompted the EUR/USD to trade a wide 1.09-1.14 range last week. Despite the IMF’s insistence to delay rate hikes, the improving jobs environment is likely to keep the US Fed on a September rate hike path. A gradual and well communicated tightening cycle combined with the Fed maintaining a healthy balance sheet is unlikely to derail the US recovery, but it should keep the USD well supported. While US labour market conditions are a key indicator that the US Fed is looking at to give it justification for tighter policy, this week’s retail sales will also give better clarity on the health of household balance sheets and whether the Q1 weakness was a likely aberration. Meanwhile, GBP volatility is also likely to remain, with Governor Carney’s testimony on inflation to Parliament the key event of the week for UK investors.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E  info@etfsecurities.com

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This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (”FCA”).

Investments may go up or down in value and you may lose some or all of the amount invested.  Past performance is not necessarily a guide to future performance. You should consult an independent investment adviser prior to making any investment in order to determine its suitability to your circumstances.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FSA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction.  No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

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