Etikett: FOMC

Gold ETP outflows after hawkish September FOMC minutes

ETF Securities Gold ETP outflows after hawkish September FOMC minutesGold ETP outflows after hawkish September FOMC minutes

ETF Securities Weekly Flows Analysis – Gold ETP outflows after hawkish September FOMC minutes

  • Gold ETP outflows after hawkish September FOMC minutes.
  • Investors continue to sell short GBP and buy long GBP ETCs as GBP seems making a floor.
  • Platinum ETPs recorded the largest inflows of US$22.8mn last week, as investors see price opportunity relative to Gold.
  • Investors increased their short positions on UK and German stocks.

Gold ETPs see outflows after three consecutive week of inflows, as the September FOMC minutes suggested rate hike was a close call. Gold ETPs recorded US$32.8mn withdrawn last week after 11 weeks of inflows, signalling that investors see increased prospects for higher US interest rates. Gold dipped below US$1,250 per troy ounce on Wednesday following the release of the FOMC minutes and under pressure from the strengthening of the US dollar. The minutes revealed several members said it would be appropriate to raise rates “relatively soon”. Following the minutes’ release, investors continued to see about 66% chance of a rate increase in December, based on prices in federal funds futures contracts. Typically, in the run up to a rate hike, gold prices remain weak although we believe the continued pursuance of a negative real interest rate by the US Federal Reserve coupled with political instability throughout 2017 is likely to be supportive for gold in the longer term.

Platinum recorded the largest inflows of US$22.8mn last week, suggesting the recent price weakness has been a buying opportunity for investors. Platinum fell for a third consecutive week entering a technical bear market last Friday amid prospects for higher U.S. interest rates and speculation according to Bloomberg that demand will slip for the metal used in auto pollution-control devices. We believe that very robust car sales figures reported for the US, the EU and China in the last two weeks coupled with increasingly tight emissions standards are likely to provide support in the longer term. Furthermore, platinum trades below marginal cost and has been in supply deficit for the last 4 years.

Short positioning on UK equity ETPs increased by US$7.2mn, as UK stocks fell for two weeks in a row. Investors continue to increase their short positions in ETPs tracking short UK FTSE 100, in the wake of renewed fears of “hard” Brexit’s negotiations. Year-to-date, we saw US$65.5mn inflows to ETPs tracking short UK equity exposure. In the meantime, investors increased their exposure to global equity ETPs led by thematic ETPs related to robotics (US$8.5mn).

Investors continued to cut short GBP positions by US$14.1mn against the Euro as Sterling appears to have reached rock bottom. Currency ETCs tracking short GBP exposures recorded increasing outflows in the past two weeks. Meanwhile investors have increased their Long GBP positions by US$22.4mn. Key events to watch this week. The US presidential candidates Hillary Clinton and Donald Trump hold their final debate in Las Vegas, exactly two weeks away from election day. In Europe, the European Central Bank meets next Thursday to review monetary policy and stimulus programs. China will report on 3Q GDP as investors wait to see whether the economy has stabilized.

Video Presentation

Morgane Delledonne, Fixed Income Strategist 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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Yen poised for move lower

Trade Idea – Foreign Exchange – Yen poised for move lower

Highlights

  • Hawkish US Fed official, Jeffrey Lacker, has sent US rate expectations higher and the USD/JPY up through recent downward trend lines.
  • The real yield differential between the US and Japan has started to trough and normalise supporting US Dollar strength.
  • USD/JPY is poised for further upside if current resistance levels are broken.

USD/JPY forms a base

Sentiment towards the US Dollar has turned a corner in the past ten days, after a hawkish speech from Richmond Federal Reserve (Fed) President, Jeffrey Lacker, prompted a fresh spike in rate-hike expectations. In his speech, the Fed official explained that the US policy rate should already be at 1.5% and that monetary authorities should be taking greater pre-emptive action to offset building domestic inflationary pressure. While Lacker himself is not a voting member of the Federal Open Market Committee (FOMC), his words echoed the sentiment of three members on the committee that broke ranks and voted to raise rates earlier at the September meeting. The speech combined with a strong US service sector report the following day to boost investor expectations of a December rate rise to 68% (from around 60%) and push the trade weighted dollar index up 2% to the highest level in approximately six months. The positive USD momentum has helped the USD/JPY currency pair break through its medium term downward trend line and test key resistance levels established earlier in the year. Signs of diminishing slack in the US economy and dovish Japanese monetary policy should help to boost the US-Japan real rate differential in months to come, lending strength to the USD/JPY currency pair.

(Click to enlarge)

Real yield compression to reverse

The USD/JPY has been subject to a large 14% drop this year as the difference between US and Japanese real yields (inflation adjusted) has plunged to multi-year lows. The move comes despite the Bank of Japan (BoJ) unleashing negative rates and unprecedented levels of monetary easing. The driver of yield compression has been the sharp drop in US nominal yields as pricing of interest rate normalisation has turned dramatically more dovish over the course of the year, while Japanese inflation expectations have grinded higher. More recently, rising US nominal yields has caused this difference to trough and even start to climb (see Figure 1). As year-end draws nearer, we expect this trend to continue as healthy US inflation and labour market data (September US inflation data due on 18th October and next payroll release on November 4th) support rate hike expectations and in turn the USD/JPY.

Watch for the break

In recent months, the USD/JPY currency pair has managed to form a base at the psychologically important 100 level after sustaining the large fall earlier in the year. The Lacker speech (4th October) helped to reverse the pair’s fortunes, sending it up through its 50-day moving average (DMA) (which has been acting as a medium term downward trend line) to test resistance at 104.2. Should the pair manage to break this level then we could see it move to its high from July of 107.48. Alternatively, if the pair sunk towards the 100 level it should be viewed as an attractive buying opportunity.

Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

Currency ETPs

EUR Base

ETFS Long JPY Short EUR (SJPS) ETFS Short JPY Long EUR (SJPL)

GBP Base

ETFS Long JPY Short GBP (GBJP) ETFS Short JPY Long GBP (JPGB)

USD Base

ETFS Long JPY Short USD (LJPY) ETFS Short JPY Long USD (SJPY)

3x

ETFS 3x Long JPY Short EUR (EJP3) ETFS 3x Short JPY Long EUR (JPE3) ETFS 3x Long JPY Short GBP (JPP3) ETFS 3x Short JPY Long GBP (SYP3) ETFS 3x Long JPY Short USD (LJP3) ETFS 3x Short JPY Long USD (SJP3)

5x

ETFS 5x Long JPY Short EUR (EJP5) ETFS 5x Short JPY Long EUR (JPE5)

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”) which 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

Why the FOMC should raise rates, but won’t

Why the FOMC should raise rates, but won’t

FX Research Why the FOMC should raise rates, but won’t

Highlights

•    The FOMC has a history of being reactive to inflationary pressure and we expect that this trend is unlikely to change. The Fed should raise rates in September, but won’t.

•    Inflation expectations are stable just shy of the Fed’s target. Rising wages could pose a risk to the Fed’s credibility as we expect inflation to continue to rise in Q4.

•    Currency market is positioned for ‘no hike’. We expect the US Dollar to strengthen against G10 currencies in the coming year as rate differentials widen.

For more information contact:

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

Important Information

The analyses in the above tables are purely for information purposes. They do not reflect the performance of any ETF Securities’ products . The futures and roll returns are not necessarily investable.

General

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which 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.

Fed’s policy tightening pressure on gold will be temporary

Fed’s policy tightening pressure on gold will be temporary

While the Fed is likely to restart its rate raising cycle by the year’s end, gold is likely to increase over the coming year as the policy maker remains behind the curve. We maintain our forecast of US$1440/oz for mid-2017, although we may see a price decline in the run-up to a December rate hike. Fed’s policy tightening pressure on gold will be temporary

The FOMC held policy rates steady yesterday, but has begun the process of preparing the market for the next rate hike, which the market has priced-in for December 2016. However, voting members of the committee have significantly reduced their projections for rate hikes in 2017. The average appropriate policy path for 2017 projected by voting members now only sits at 1.1% (implying only two 25bps rate hikes in 2017, assuming we see a 25bps rate move in December 2016). That is down from 1.6% (which would have implied 4 rate moves in 2017). Projections for rates in the longer run have also been revised downward. The Fed also revised downward GDP growth forecasts for 2016 by 0.2%.

As we have argued previously, inflationary pressures in the US are present. Core CPI inflation in the US is 2.3% (core CPE inflation is 1.6%). As weak energy and food prices pass-through the year-on-year calculation, headline inflation is likely to rise from the current subdued 0.8%, closer to the Fed’s target of 2%. The Fed projects unemployment rates to fall to 4.5% in 2018 from 4.8% currently. That sits below the Congressional Budget Office’s estimate of the natural rate of unemployment. In short, the loose monetary policy that will aid the fall in unemployment is likely to be inflationary. We believe that the Fed’s cautious approach to raising rates is likely to leave the policy maker behind the curve and so increases in nominal interest rates are not likely to keep pace with increases in inflation. As our gold model indicates, such as scenario is likely to be gold price positive.

In the very near term, as the Fed preps the market for a December rate hike, the US Dollar is likely to maintain its strength, which is typically gold price negative. But as we have seen in the past, once a rate move takes place, the Dollar sells off and gold prices tend to rally. Speculative positioning in the gold futures could also decline. However, based on historic relationships between gold and speculative positioning, today’s gold price fails to reflect just how bullish the futures market is. A trimming of speculative positions is likely to just correct positioning rather than price.

The habitual tantrum that markets display after rate hikes also tend to be gold price positive. The market volatility we saw in January 2016 could be taste for what is to come in January 2017. Gold tends to be the port of call in volatile cyclical markets.

Nitesh Shah, Research Analyst at ETF Securities

Nitesh is a Commodities Strategist at ETF Securities. Nitesh has 13 years of experience as an economist and strategist, covering a wide range of markets and asset classes. Prior to joining ETF Securities, Nitesh was an economist covering the European structured finance markets at Moody’s Investors Service and was a member of Moody’s global macroeconomics team. Before that he was an economist at the Pension Protection Fund and an equity strategist at Decision Economics. He started his career at HSBC Investment Bank. Nitesh holds a Bachelor of Science in Economics from the London School of Economics and a Master of Arts in International Economics and Finance from Brandeis University (USA).

More mistakes from the Fed…

More mistakes from the Fed…

More mistakes from the Fed… The Fed should act now to raise rates, or risk being further behind the curve.

Essentially, the Fed has a dual mandate… to maintain full employment and price stability. Wage growth sits at the intersection of these objectives. Currently wage pressure is growing, alongside inflationary forces, and loose monetary settings could see this trend accelerate, leaving the Fed further behind the curve. The Fed needs to act now to raise rates in order to temper the ‘medium term inflationary’ pressures that are already building.

Is the Fed really ‘data dependent’?

What the FOMC will do vs. what they should are very different things. There always seems to be ‘another’ concern that keeps the Fed on hold. Earlier in 2016 it was the strong US dollar and market volatility. Now it’s soft jobs numbers and the possibility of Britain leaving the EU. Aside from last month’s soft employment numbers, the recovery remains on track in the US – consumption and lending indicators are robust – and not near any emergency levels, as interest rate settings would currently indicate.

While the Fed claims data dependence, the short answer is no, it isn’t. We believe that the Fed is ‘market dependent’ and attempting to manage market expectations is a dangerous game in economics. Uncertainty exists and central banks are on the front lines of the war against volatility. Yet the Fed’s reticence to do what it ‘should’ risks causing more volatility. Extreme asset market volatility has moderated but policy uncertainty threatens the fragility of current market sentiment. The longer the Fed delays, the higher the volatility is likely to become.

Mistakes are being made

Fed Chair Yellen continues to stress the need for a gradual increase in interest rates. Six months between rate hikes is certainly a very gradual pace. But with another policy mistake (not raising rates in June) imminent, it’s unlikely that conditions are ever going to be perfect for the Fed to raise rates. And if conditions were perfect, the level of rates should probably be hundreds of basis points higher already.

Hawkish tone to prompt USD strength

With the market fully discounting a rate hike at this week’s Fed meeting, the risk is skewed for an upside move for the US Dollar (USD). Investors are not positioned for a bullish move for the USD, with futures market net long speculative at the lowest level since mid-2014. While we expect that the Fed will keep rate settings unchanged, we believe the more hawkish tone for Yellen’s press conference will drive USD strength in the near term.

Martin Arnold, Global FX & Commodity Strategist at ETF Securities

Martin Arnold joined ETF Securities as a research analyst in 2009 and was promoted to Global FX & Commodity Strategist in 2014. Martin has a wealth of experience in strategy and economics with his most recent role formulating an FX strategy at an independent research consultancy. Martin has a strong background in macroeconomics and financial analysis – gained both at the Reserve Bank of Australia and in the private commercial banking sector – and experience covering a range of asset classes including equities and bonds. Martin holds a Bachelor of Economics from the University of New South Wales (Australia), a Master of Commerce from the University of Wollongong (Australia) and attained a Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia.