European equities aren’t the great value play they once were
European equities aren’t the great value play they once were. We saw a 9% downgrade in Q1 earnings growth forecasts over the quarter, the largest since late 2014, echoing the downgrades we saw in the US. Regardless, results still missed expectations, with 69% falling short of earnings forecasts, after 70% of companies having reported. European equities aren’t the great value play they once were
Overall net income was flat but revenues were the weakest since Q1 2012, ending what has been a fairly good run for European earnings since then.
Its been core Europe where the weakness stems, primarily Germany, Netherlands and France whilst the periphery, such as Spain, Italy and Ireland have held out relatively well.
We suspect that some of the weakness has been due to the resilience of the EUR as much of the weakness has stemmed from more internationally focused sectors such as tech and consumer sectors. Whilst industrials missed expectations, quarter-on-quarter growth in this sector has been the strongest, followed by utilities.
Despite a mixed picture for the banking sector, we are seeing loan growth along with a fall in non-performing loans (NPLs). NPLs have fallen by 2.1% percentage points since this time last year, to 8% which is well below the 13% peak reached in 2014. But bear in mind, 8% is still well above its international counterparts which are all sub 3%.
We still expect the EUR strength to remain in coming quarters and is likely to continue to negatively impact the export market. This comes at a time when European earnings and valuations are now close to their long term trend. We are not saying that the poor earnings season indicates that the European economic recovery has been derailed. However, we no longer believe that Europe is a great value play.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
Time to increase allocation into emerging market equities
ETF Securities Asset Allocation Research – Time to increase allocation into emerging market equities
Summary
• Until recently developed market (DM) equities have been favoured over emerging market (EM) equities due to concerns over the slowdown of the Chinese economy.
• However, EM economies are recovering, investment flows are returning to emerging countries and EM equities are currently very cheap on absolute and relative values.
• Using the US dollar as a trading signal is a simple way to allocate between DM and EM equities and enhances the portfolio risk/return profile by increasing return.
Emerging market economy to rebound
The slowdown in EM equities has been driven by a combination of factors including the economic slowdown of its main constituent China, as the country is making its transition from an industry-driven economy into a service-driven economy and the slump in oil prices which affected many emerging countries such as Saudi Arabia.
Manufacturing PMIs for both DM and EM countries have been declining since early 2014. While DM PMIs remained above the 50 mark, EM PMIs fell below the 50 mark in August 2015 according to our calculations, before recovering last month.
(click to enlarge) Source: ETF Securities, Bloomberg
According to the Institute of International Finance (IIF), the year-over-year growth in foreign investment inflows into emerging countries has also been declining since May 2013 to become outflows in January and February 2016. According to market participants, EM companies have been through a period of deleveraging, repaying their foreign debt and refinancing them into local currencies. If this is the case, EM companies are getting healthier, setting the base for a potentially strong recovery. Total investment flows recovered for the first time last month, up US$3.4bn year-over-year, after 13 months of continuous decline.
(click to enlarge) Source: Institute of International Finance, ETF Securities, Bloomberg
Emerging market equities at a bargain
Our valuation analysis of DM and EM equities shows that EM equities are currently very cheap compared to DM equities as the relative, cyclically adjusted price to earnings (CAPE) currently stands at 35% below its 11 years median of 0.72.
(click to enlarge) *MSCI World index as proxy for DM equities and MSCI EM index as proxy for EM equities. Source: ETF Securities, Bloomberg
EM/DM relative CAPE has been declining since mid-2013 as EM CAPE has been falling 33% while DM CAPE has been quite flat over the same period. EM CAPE is 44% below its 11 years median, indicating that EM equities are also cheap in absolute value.
We use the MSCI world index as a proxy for DM equities and the MSCI EM index as a proxy for EM equities. While EM equities are more volatile than DM equities, EM equities have outperformed DM equities by an annualised 53% since 1988. The largest component for the EM index is China and the largest component for the DM index is the US, both accounting for 39% of their respective index.
Using USD to increase equity returns
As the benchmark currency for international trades, the US dollar (USD) is one of the key drivers of equity performance. Following the financial crisis, very accommodative monetary policy from the Fed weighed on the USD until the second half of 2014. Between the summer 2014 and the end of 2015, the USD surged 25% as the Fed reduced quantitative easing. EM equities, on the other hand, fell 23% over the same period.
In 2015, strong signs of US economic recovery led the Fed to initiate a rate tightening cycle, with the first rate hike in December last year. After a pause in the tightening cycle, we believe that the USD will appreciate as markets anticipate forthcoming rate increases but then it will depreciate again as rate hikes materialise. EM equities tend to perform well during periods of weak USD and vice-versa.
One simple and rational way to implement a relative trade strategy between EM and DM equities is to use the USD as a trading signal. In our strategy, we are using the dollar basket index (DXY) as a proxy for the USD. It measures the value of the USD against a basket of DM currencies. While the Fed’s trade-weighted USD index benchmarks the USD against a broader basket of currencies including EM currencies, we decided to use the DXY because of its stronger correlation with DM/EM relative performance.
(click to enlarge) *DXY Index as a proxy for the US dollar. Source: ETF Securities, Bloomberg
Our strategy is a momentum strategy which consists of buying DM equities when the USD has strengthened by more than 1.5% over the past 6 months and then shifting to EM equities when the USD has weakened by more than -1.5% over the past 6 months. As a result, the investment decision is not dependent on forecast data but only based on actual USD or DXY index historical returns over the past 6 months.
(click to enlarge) Source: ETF Securities, Bloomberg
Exposed to equity only, our portfolio does very little to reduce volatility, at 16.6% compared to 14.7% for the MSCI AC World, our benchmark. However, the strategy still enhances the portfolio Sharpe ratio to 0.40 from 0.08 by increasing returns by 122% compared to the MSCI AC World index.
The portfolio also outperformed both DM and EM equities on an annual basis over the same period by 119% and 43% respectively while being less volatile than EM equities. In addition, the transaction cost is expected to be very low as the number of transactions in the simulated portfolio stands at around two transactions per year on average.
(click to enlarge) *Based on daily data in USD from December 30, 1988 to March 31, 2016. Volatility and returns are annualised. Max drawdown defines as the maximum loss from a peak to a trough based on a portfolio past performance. Max recovery is the length of time in number of years to recover from the trough to previous peak. Risk free rate equals to 3.2% (Cash – a simulated combination of the IMF UK Deposit Rate and the Libor 1Yr cash yield). Source: ETF Securities, Bloomberg
After three years of negative performance, emerging markets are starting 2016 on a positive note, posting a solid 5.4% return during the first quarter of 2016 while DM equities were down – 1%. EM manufacturing PMIs for March have returned above the 50 mark indicating that emerging economies are recovering. Capital flows into EM are increasing again and our valuation analysis shows that EM equities are currently at a bargain, indicating that it is an opportune time to gain exposure or increase exposure to EM equities. With EM growth highly correlated to the USD, using the currency as a trading signal enables investors to increase their portfolio return and improve its Sharpe ratio by shifting exposure between DM and EM equities at a low implementation cost.
Important Information
General
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 (the “FCA”).
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.
• Commodities: Oil market to rebalance in 2020 at US$80/bbl. according to IEA.
• Equities: Chinese stocks benefit from strong ’Singles Day’ sales.
• Currencies: USD and GBP strengthen as employment market improves.
• Upcoming webinar: Global commodities, have we reached the floor in prices? Register here to attend.
• Oversupplied markets and weak industrial production in China continue to weigh on commodity prices
• While stocks fell across the developed market, strong ‘Singles Day’ sales lent support to China A
• The US dollar continued to find support from previous week’s payroll numbers, while the Euro came under pressure as ECB hinted at expansion of QE next month
Commodities
Oil market to rebalance in 2020 at US$80/bbl. according to IEA. In the World Energy Outlook 2015 published on Tuesday, the International Energy Agency (IEA) expects oil market to remain subdued for the next five years. While IEA forecasts annual demand growth at 900,000 barrels per day until 2020, further production and spending cut are needed to reduce the surplus on the oil market. US oil inventories reported last week are now close to its all-time high while Saudi Arabia is offering oil at a substantial discount to Brent to the European market, sending oil prices near their respective historical lows. A considerable sell-off in the global ETF space continues to weigh on platinum and palladium prices. Meanwhile, sugar and cocoa both rose 1.4% on the upward revision of the 2015/2016 deficit by the International Sugar Organization and on the acquisition of Nyonkopa, the Ghanaian cocoa purchaser, by the Swiss based Callebaut chocolate maker announced last Monday.
Equities
Chinese stocks benefit from strong ‘Singles Day’ sales. Developed market stocks fell over the past week. Buoyant jobs data in the US released the previous Friday failed to support the S&P 500, which dropped 2.5%, as US retail sales disappointed. China import, industrial production and loan growth data came below expectations and previous months’ numbers. However, MSCI China A index gained 3.1% last week responding to the better-than-expected October Chinese retail sales data and the strong ‘Singles Day’ sales last Wednesday, highlighting the transition in China’s engine of growth toward services. While industrial production in Europe has been growing by 1.7% yoy in September, German industrial production fell for the third consecutive month and UK’s economic recovery remained unbalanced pushing the DAX 30 and FTSE 100 down 1% and 2.8% respectively. The soft data is placing pressure on the European Central Bank for imminent policy easing.
Currencies
USD and GBP strengthen as employment market improves. Following strong US job indicators the previous Friday, the US dollar (USD) continues to strengthen although the odds for a rate hike in December reduced from 68% to 64% over the past week. In contrast to the US, strong employment data in Australia failed to support the Australian dollar which barely moved over the same period. While the British pound plunged on the day following the Bank of England decision to keep rate unchanged, the currency bounced back on a better-than-expected unemployment rate, ending last week up 1.2%. In the meantime, the European Central Bank (ECB) hinted that the asset purchase programme could ramp up to €1.1bn as soon as next month weighing further on the Euro while the Japanese Yen fell 0.7% despite expectations that the bank of Japan may put an end to its easing program in the near term.
For more information contact:
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com
Important Information
General
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.
Other than as set out above, investors may contact ETFS UK at +44 (0)20 7448 4330 or at retail@etfsecurities.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.
Third Parties
Securities issued by each of the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A., Deutsche Bank AG any of their affiliates or anyone else or any of their affiliates. Each of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A. and Deutsche Bank AG disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith.
”Dow Jones,” ”UBS”, DJ-UBS CISM,”, ”DJ-UBS CI-F3SM,” and any related indices or sub-indices are service marks of Dow Jones Trademark Holdings LLC (”Dow Jones”), CME Group Index Services LLC (”CME Indexes”), UBS AG (”UBS”) or UBS Securities LLC (”UBS Securities”), as the case may be, and have been licensed for use by the Issuer. The securities issued by CSL although based on components of the Dow Jones UBS Commodity Index 3 month ForwardSM are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes, UBS, UBS Securities or any of their respective subsidiaries or affiliates, and none of Dow Jones, CME Indexes, UBS, UBS Securities, or any of their respective subsidiaries or affiliates, makes any representation regarding the advisability of investing in such product.
• Commodities: Strong greenback weighs on energy and precious metals.
• Equities: Buoyant US jobs report rejuvenates confidence in world’s largest economy.
• Currencies: Holler for dollar after strong US jobs report raises the prospect of 2015 rate hike.
• Upcoming webinar: Global commodities, have we reached the floor in prices? Register here to attend.
• Equities remained muted, commodities slid while bond yields surged after the release of a stellar US jobs report saw the prospect of higher US borrowing costs resonate across the markets before the year end.
• The greenback was the main beneficiary of the payrolls report and weighed on the commodity complex with energy and precious metals posting losses of more than 4.5% for the week.
Commodities
Strong greenback weighs on energy and precious metals. A firmer dollar buoyed by a surprisingly strong US monthly payrolls report took its toll on the yellow metal, which posted a 4.7% decline on the week. Meanwhile WTI crude and Brent oil slid 4.9% and 4.3% respectively, shrugging off the weekly fall in active U.S. oil drilling rigs. Despite attaining its highest October figure in 14 years, US vehicle sales failed to support palladium prices plagued by ETF outflows and Volkswagen widening the scope of the emissions scandal to its gasoline engines. Supply woes resurfaced after Lonmin the world’s third largest platinum miner cautioned it could suffer insolvency if it failed to shore up its balance sheet. Sugar plunged 5.5% on Wednesday as investors trimmed positions mulling over tightening world supply against sluggish demand.
Equities
Buoyant US jobs report rejuvenates confidence in world’s largest economy. The strikingly buoyant US jobs report released on Friday failed to change the trajectory of global indices that traded most of the week on a cautious footing marked by light volumes. The monthly payrolls swept past expectations adding 271,000 jobs in October and unemployment data halved to 5% from its high in 2009 fuelling the Feds case for a rate hike in 2015. Waning demand inside the Eurozone resulted in an unexpected drop in German industrial production by 1.1% and slump in factory orders by 1.7% pressing for further easing in monetary policy by the European Central Bank. Meanwhile the Euro Area manufacturing purchasing managers index (PMI) rose to 53.9 in October, pointing to a potential recovery in this regard.
Currencies
Holler for dollar after strong US jobs report raises the prospect of 2015 rate hike. Interest rate futures moved to price in a 70% probability of a rate hike in December, after a stellar US jobs report reinforced the Federal Reserve chair Janet Yellen’s remarks of a December rate hike a “live possibility”. With less than a month to go, the rise in the odds for a US rate hike sets the stage for monetary policy divergence between US and China, Europe and Japan, who are likely to continue to ease policy. Super Thursday caught investors off guard as dovish comments by the Bank of England governor, Mark Carney, sent the pound lower. Minutes from the Bank of Japan’s October meeting indicated optimism on the domestic economy while concerns from China and emerging markets continued to linger. Meanwhile European Central Bank maintained its bias towards further monetary easing if weak external conditions persist during its reassessment in December.
For more information contact:
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com
Important Information
General
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.
Other than as set out above, investors may contact ETFS UK at +44 (0)20 7448 4330 or at retail@etfsecurities.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.
Third Parties
Securities issued by each of the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A., Deutsche Bank AG any of their affiliates or anyone else or any of their affiliates. Each of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A. and Deutsche Bank AG disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith.
”Dow Jones,” ”UBS”, DJ-UBS CISM,”, ”DJ-UBS CI-F3SM,” and any related indices or sub-indices are service marks of Dow Jones Trademark Holdings LLC (”Dow Jones”), CME Group Index Services LLC (”CME Indexes”), UBS AG (”UBS”) or UBS Securities LLC (”UBS Securities”), as the case may be, and have been licensed for use by the Issuer. The securities issued by CSL although based on components of the Dow Jones UBS Commodity Index 3 month ForwardSM are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes, UBS, UBS Securities or any of their respective subsidiaries or affiliates, and none of Dow Jones, CME Indexes, UBS, UBS Securities, or any of their respective subsidiaries or affiliates, makes any representation regarding the advisability of investing in such product.
• Commodities: Gold under pressure after 2015 rate hike odds stacked at 50/50.
• Equities: Change in Fed’s tone sees choppy trading week for global stocks.
• Currencies: Hawkish Fed raises the prospect of a 2015 rate hike.
• Upcoming webinar: Global commodities, have we reached the floor in prices? Register here to attend.
Asian stocks have opened on a weaker footing after official data highlighted contraction in China’s manufacturing sector continuing through October. Although the factory activity came in higher than the previous month at 48.3, the reading remains below 50 dampening hopes of an expansion and renewing concerns of a slowdown in the world’s second largest economy. The release of the figures saw oil come under pressure. As US policy makers continue to eye December as a possible lift-off date, the October jobs report will provide further clues on the trajectory of interest rates. This week central banks in UK and Australia will announce their key interest rate decision.
Commodities
Gold under pressure after 2015 rate hike odds stacked at 50/50. Gold slid to $1134 last week hitting its lowest level in four weeks after the Federal Reserve concluded its last meeting on an unexpectedly hawkish note, bolstering the US dollar. Silver declined to $15.5 tracking gold lower. Wheat posted its biggest weekly gain in four months rising 6.4% as weather concerns in Ukraine, Russia and Australia continue to remain supportive of the price. Concerns are lingering over the quality of the wheat crop in Australia that is forecast to receive heavy rain in the days ahead. In addition better than expected export sales reported by the US department of Agriculture (USDA) improved the demand outlook for wheat. The ninth consecutive week of decline in the US oil rig count helped WTI crude and Brent oil rise rally 4.5% and 3.3% respectively.
Equities
Change in Fed’s tone sees choppy trading week for global stocks. Global stocks traded higher after the Federal Reserve softened their stance towards global financial risks and hinted at the possibility of a 2015 rate hike at the December meeting. However a lacklustre Q3 earnings season coupled with weaker US GDP data and falling consumer confidence forced markets to concede most of their gains last week. Eurozone and German inflation climbed out of negative territory and consumer confidence rose unexpectedly. In the US Exxonmobil and Chevron emerged as the latest victims of declining oil and gas prices, reporting a 63% and 47% drop in earnings per share for the third quarter while downstream operations rose. In Europe, Royal Dutch Shell announced its worst loss in 16 years.
Currencies
Hawkish Fed raises the prospect of a 2015 rate hike. The greenback rose sharply after the Federal open market committee (FOMC) meeting but retraced all its gains after a slew of weak US economic data. The October jobs report is now all the more import as guide for a December lift off by the highly data dependent Fed. Sweden’s Riksbank left its key rate unchanged but expanded the QE bond buying program by another SEK 65bn. The New Zealand central bank hinted at rate cuts ahead but opted to leave rates unchanged. The Chinese Yuan posted its largest one-day gain in 10 years on speculation the central bank would introduce reforms to foster yuan denominated trading to foreign firms. The 1% rise in Japanese industrial production after a 1.2% contraction in the previous month strengthened the Bank of Japan’s case to keep policy unchanged helping the Yen trade higher. The Aussie dollar remained lower after a weaker inflation reading raised hopes of a rate cut this week.
For more information contact:
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com
Important Information
General
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.
Other than as set out above, investors may contact ETFS UK at +44 (0)20 7448 4330 or at retail@etfsecurities.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.
Third Parties
Securities issued by each of the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A., Deutsche Bank AG any of their affiliates or anyone else or any of their affiliates. Each of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A. and Deutsche Bank AG disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith.
”Dow Jones,” ”UBS”, DJ-UBS CISM,”, ”DJ-UBS CI-F3SM,” and any related indices or sub-indices are service marks of Dow Jones Trademark Holdings LLC (”Dow Jones”), CME Group Index Services LLC (”CME Indexes”), UBS AG (”UBS”) or UBS Securities LLC (”UBS Securities”), as the case may be, and have been licensed for use by the Issuer. The securities issued by CSL although based on components of the Dow Jones UBS Commodity Index 3 month ForwardSM are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes, UBS, UBS Securities or any of their respective subsidiaries or affiliates, and none of Dow Jones, CME Indexes, UBS, UBS Securities, or any of their respective subsidiaries or affiliates, makes any representation regarding the advisability of investing in such product.
