ETFS Multi-Asset Weekly Cheap Oil for Longer
Download the complete report (.pdf)
Highlights
Unchanged OPEC daily quota pushes crude lower.
Central Banks drive equities to record levels.
Commodity currencies feel the pain of weak oil prices.
Commodities
Unchanged OPEC daily quota pushes crude lower. Last Thursday the highly anticipated OPEC meeting bore no good news for crude prices as the cartel decided to maintain the current daily supply target of 30 million barrels a day. The inaction resulted in the price of Brent falling -8.5% on the week with a vast majority of the decline occurring directly after the meeting’s conclusion was revealed. In our view the impact of Brent remaining below $80/bbl will have two important consequences, the first of which will be to cause global suppliers to curb production as the price level breaches the marginal cost of production dissolving producer profits. The second is to put more pressure on OPEC to reduce exports at the June 2015 meeting as members struggle to balance their government budgets with oil at current levels. This should create a more supportive environment for oil in the longer term.
Equities
Central Banks drive equities to record levels. European shares rallied higher this week following ECB president, Mario Draghi’s address of the European Banking Conference where he stated current policy measures are insufficient to ensure price stability in the Eurozone. This stoked speculation among investors that the ECB will broaden its asset purchase program to engage in full blown quantitative easing, driving the DAX 30 and FTSE MIB 5.18% and 4.64% higher. In Asia, Chinese equity markets applauded moves by the People’s Bank of China (PBoC) as it reduced both the benchmark 1-year deposit and lending rate, demonstrating the central bank’s willingness to take action to ensure the economy meets target growth levels. The MSCI China A Index rose 7.9% over the week as the Chinese equity market surpassed Japan’s to become the world’s second largest stock market for the first time since 2011 totalling $4.48tn.
Currencies
Commodity currencies feel the pain of weak oil prices. The sharp drop in oil prices last week weakened the Norwegian Krone by 2.5% against Pound Sterling, 2.4% against the US Dollar and 1.9% against the Euro. A bullish US Dollar against commodity currency basket strategy returned close to 1% last week. We believe the US Dollar will continue to gain strength on the back of diverging global monetary policy. The US Fed will likely embark on a tightening phase in 2015, while the ECB and BOJ will have to continue to loosen. Last week’s surprise upward US GDP revision and bullish expectation for this week’s US payrolls number has aided US Dollar strength. The Swiss National Bank was spared being forced to “tie its hands” with gold and compromise its ability to cap its exchange rate against the euro at 120, after the Swiss population voted against the proposal at the referendum over the weekend.
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.