Eurozone and UK Uncertainty Dampens Investor Sentiment ETFS Multi-Asset Weekly
Highlights
Coffee remains volatile ahead of Brazilian state estimates of this year’s crop.
European stocks drop as Russian sanctions and Scottish vote unnerve investors.
Commodity currencies under pressure as FX volatility rises.
Cyclical commodities and European equities fell last week as investors refrained from taking on big bets ahead of the Scottish referendum or the Federal Reserve’s meeting this week. Meanwhile the EU’s tightening of sanctions against Russia last Friday is likely to consolidate the risk-averse behavior investors have been displaying lately. A batch of weaker-than-expected data from China also dented global sentiment, although Chinese stocks appear to have shrugged of the news with the MSCI China A index posting gains last week.
Commodities 
Coffee remains volatile ahead of Brazilian state estimates of this year’s crop. Coffee fell 8.4%, wiping out the past month’s excessive gains. As the Brazilian coffee harvest comes closer to an end, prices have been sent into a volatile spin as speculators guess the impact of this year’s drought on the crop. A report by CONAB, Brazil’s National Supply Company this week should give investors a better forecast of the progress of this year’s harvest. The USDA released its World Agricultural Demand and Supply report which was bullish on cotton and bearish on wheat. Cotton prices jumped 4.0%, while wheat fell 3.9%. Lean hogs and livestock also rose 2.7% and 1.1% respectively as the same report projected lower pork and beef production. Zinc, nickel and lead fell 5.7%, 5.1% and 4.9%, respectively, as a batch of weak Chinese data hurt sentiment toward the cyclical metals. At the same time the probability of the Philippines following Indonesia’s example in banning ore exports has lessened, reducing some of the premium in these metals.
Equities
European stocks drop as Russian sanctions and Scottish vote unnerve investors. Investor sentiment has been buffeted by increased uncertainty over the potential outcome of the Scottish independence vote, alongside concerns over geopolitical risks affecting growth. The ‘Better Together’ campaign appears to have recovered after the previous week pro-independence push, but uncertainty ahead of the Thursday’s vote has been weighing on European equities. The FTSE 100® Super Short Strategy Index closed the week up 2.2% – the first time since beginning of August. While the price of gold slipped for the second consecutive week ahead of the Federal Reserve’s meeting as the USD strengthened, the EURO STOXX 50® Investable Volatility Index surged 8.2%, the largest weekly gain over the past year. Meanwhile, the MSCI China A Index shrugged off weaker Chinese economic data, posting an 1% gain last week
Currencies
Commodity currencies under pressure as FX volatility rises. Rising volatility has been supportive of USD with commodity currencies recording weakness alongside the price declines experienced across a broad range of commodities. The key risk that could hamper further USD strength this week will be any dovish rhetoric from the Fed after the weaker-than-expected jobs report. Meanwhile the GBP will remain in focus with the Scottish election appearing to be a closely run event. While we expect GBP to rebound if the ‘No’ campaign against independence wins out, we feel that this would present an opportunity to sell into such rally and remain bearish on the Pound against the USD. The other key event this week will be the extent of the take up of the introduction of the ECB’s latest stimulus, the TLTRO. The ECB remains committed to increasing its support to the Eurozone economy and we expect further Euro weakness as the ECB’s balance sheet begins to balloon.
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