Etikett: US Dollar

Contrarians appear to sell US Dollar and buy sugar

Contrarians appear to sell US Dollar and buy sugar ETF SecuritiesContrarians appear to sell US Dollar and buy sugar

ETF Securities Weekly Flows Analysis – Contrarians appear to sell US Dollar and buy sugar

Highlights

  • US$6.7mn inflows into short USD long EUR ETPs as investors place contrarian trades.
  • Gold outflows resumed after two weeks of inflow.
  • Falling sugar prices draw out potential bargain-hunters.

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US$6.7mn inflows into short USD long EUR ETPs as investors place contrarian trades. In a week where US 10-year Treasury yield temporarily rose above 3% for the first time since 2014, which unleashed pent-up US Dollar strength, ETP investors appeared to take on a contrarian trade. The US Dollar basket rose 1.4% with particular strength against the Euro (1.6%). The Euro depreciated the most on Thursday following acknowledgment from the European Central Bank (ECB) that economic data has been weak in the recent past and that economic developments will need to be closely watched during Q2. While Mario Draghi, the ECB’s President, offered balance in comments highlighting that weakness could be due to temporary factors and come in the shadow of a strong spurt of growth at the end of 2017, the overall tone was judged by the market to be dovish. ETP investors however, appear positioned the Euro to reverse the depreciation seen last week.

Gold outflows resumed after two weeks of inflows. Rising Treasury yields and an appreciating US Dollar drove gold prices 1.1% lower and led to US$23.1 outflows from gold ETPs. That brings a break to several weeks of inflows, when gold had seen support from rising geopolitical risk. A historic summit between North Korea and South Korea last week led to an accord to completely “cease all hostile acts against each other” and work on denuclearising the Korean peninsula. That has taken some of the geopolitical premium off gold.

Falling sugar prices draw out potential bargain-hunters. Last week’s inflows of US$8.9mn into long sugar ETPs were the largest since January 2015. Sugar prices have tumbled 23% since the beginning of the year with global sugar markets amply supplied. With the EU having lifted its export quotas on sugar last year and plenty of supply coming from the major raw cane sugar producers like Brazil and India, sugar has come under pressure. However, as we switch over to the 2018/19 season, some speculate that more cane will be diverted to ethanol production in Brazil, amid higher oil prices (ethanol is alternative fuel in Brazil, with most cars able to consume either gasoline or ethanol). That could leave less cane available for sugar and potentially higher prices.

Outflows from platinum and palladium ETPs follow weak car sales. Platinum ETPs had outflows of US$7.1mn while palladium ETPs had outflows of US$10.6mn. Both metals are used in autocatalysts and so are sensitive to auto sales. European passenger car sales declined 5.3% y-o-y in March 2018 (marking the first fall in March since 2014) and commercial vehicles fell 2.5% y-o-y in March 2018.

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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.

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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information.

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Commodity outflows surge as US dollar rebounds

Commodity outflows surge as US dollar rebounds

ETF Securities – Commodity outflows surge as US dollar rebounds

Highlights

  • Inflows into nickel ETPs rise for the 3rd consecutive week, attaining their highest level since inception.
  • Gold ETP outflows rise to their highest level since September 2017 on the back of a strong jobs report.
  • Outflows from diversified basket ETPs climb to their highest level in 16 weeks, reversing 5 weeks of inflows.
  • Commodity outflows surge as US dollar rebounds

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Inflows into nickel ETPs rise for the 3rd consecutive week, surging to their highest level since inception, totalling US$71mn. The weaker US dollar coupled with a robust stainless steel market have helped drive nickel prices up 9% so far this year (as of 2 Feb 2018). Added to that, higher cobalt prices are triggering the substitution of cobalt with nickel in lithium-ion batteries, thereby raising expectations of future demand for nickel from battery led technology. The International Nickel Study Group (INSG) expects China to drive further demand growth in 2018. While Indonesian nickel ore production has driven global output to record levels, global inventories have been falling. Nevertheless, nickel’s deficit is expected to be smaller in 2018 vs 2017 according to INSG.

Gold ETP outflows worth US$251mn rose to their highest level since September 2017. Despite the selloff in global equity markets last week, gold prices came under significant pressure after the US dollar rallied on the back of a strong US jobs report. US nonfarm payrolls jumped by 200,000 last month and average hourly wages climbed 2.9% year-on-year (the highest since May 2009). The acceleration in wage growth had long been awaited by market participants and drove speculation that the Federal Reserve would lift US interest rates more aggressively than previously expected. Gold, which offers no yield, remains vulnerable into a rising rate environment.

Crude oil ETPs experienced the 24th consecutive week of outflows, totalling US$22.3mn last week. US oil production is set to increase in the coming months partly owing to productivity gains and as drilling activity picks up. The Energy Information Administration (EIA) expects production in the US to rise by just shy of 1 million barrels per day this year, which should cover more than half of the increase in global oil demand estimated by the EIA. We expect to see crude oil prices correct owing to rising growth in US oil production and an increase in stocks in the first quarter.

Outflows from diversified basket ETPs amounting to US$21.6mn surged to their highest level in 6 weeks, reversing 5 weeks of inflows. The commodity complex, led by energy and precious metals, suffered widespread losses last week as the greenback reversed its downward trend.´

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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.

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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information

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.

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US dollar gives transitory boost to commodities

US dollar gives transitory boost to commodities

Commodity Monthly Monitor US dollar gives transitory boost to 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

  • Global oversupply projected to continue for 2017/2018.
  • Weaker US dollar provides additional support to the improving fundamentals for industrial metals.
  • Energy rally looking stretched.
  • Further upside for precious metals amidst weaker US dollar

Summary

Commodities have enjoyed a great start to 2018. From the low point mid-December they have rallied 6.7%. The performance has been broad-based too – driven not only by the Iran issues inflating the oil price – but a rally in industrial/precious metals and agriculture. Broad global economic growth has supported commodity prices, although we are wary of some who are interpreting this as being a positive sign broadly for commodities this year. Commodities as an asset class are a very heterogeneous group and we expect varied performance from each segment this year in particular.

Although we expect the Fed to continue to tighten policy, we think the downside risks to gold prices are limited because real interest rates will remain depressed as inflation gains pace in the US. However, a shock event, such as an equity market correction, could force gold prices higher. On balance we see little change in gold prices in the coming year.We expect the best performer for 2018 to be industrial metals. They are likely to benefit the most from improving emerging market growth, at the same time we expect supply to remain in deficit in 2018 as the current lack of investment in mining infrastructure continues to bite.

Historically we have found that metal markets begin to move towards a balance two years after miner profit margins hit rock-bottom. Miner margins fell to a low of 2% at the beginning of 2016 and since have recovered to just over 7%. So if we see a repeat of historical patterns, we should see supply begin to improve in late 2018, but it could take years to move back into balance.

Global oversupply projected to continue

Global oversupply projected to continue for 2017/2018. The USDA January World Agricultural Supply and Demand (WASDE) report updates show most of the commodities in a surplus. Performance across the sector have been mixed over the past month. Cotton continues to benefit from strong Chinese demand while the prospects for the sugar market will likely keep prices subdued for longer.Weaker US Dollar provides additional support to the improving fundamentals for industrial metals. The IMF has upgraded its growth forecast for China in 2018 and 2019.

With the global recovery continuing apace, the weaker US Dollar will remain supportive until the US Federal Reserve is forced to adjust monetary policy more aggressively than the market expects. Energy rally looking stretched. The energy complex rallied by 9.1% last month. Natural gas spiked as cold weather hit the US and signs of OPEC’s strategy bearing fruit pushed oil prices higher. However, demand for natural gas is likely to wane in line with seasonal trends and the decline in oil inventories is corollary of rising gasoline inventory.Further upside for precious metals amidst weaker US dollar. US dollar weakness driven by the US government shutdown and rumours that China could curb Treasury purchases are boosting gold’s safe haven appeal. Meanwhile platinum’s relative price attractiveness coupled with rising new car registrations in Europe (dominated by diesel engines) continue to support long term demand for platinum.

For more information contact:

Catarina Donat Marques
ETF Securities (UK) Limited
T +44 20 7448 4386
E catarina.donatmarques@etfsecurities.com

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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.

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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information

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.

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Profit-taking in oil as price slides after OPEC meeting

Profit-taking in oil as price slides after OPEC meeting

ETF Securities Weekly Flows Analysis – Profit-taking in oil as price slides after OPEC meeting

  • Crude oil ETPs experience largest outflows in six months after OPEC agrees output cut extension
  • Industrial metal ETPs inflows hit seven-year high as speculative unwind eases
  • Investors enamoured with tech ETPs sees 11th consecutive week of inflows, totalling US$34mn
  • US Dollar buying continues at the expense of the Euro, with sixth consecutive week of inflows

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Crude oil ETPs experience largest outflows in six months after OPEC agrees output cut extension. OPEC and its non-OPEC partners have agreed to freeze production at current levels for another nine months The Saudi-Arabian led cartel has sought to bolster prices after the price collapse that emerged when its 2014 experiment failed and crippled many OPEC member economies. A deeper cut would be need to shock the market to drive prices higher. With US, Canadian and Brazilian production continuing to grow and global demand remaining soft, global oil inventories will remain elevated. OPEC’s target of bringing down the level of OECD oil inventories to its 5-year average will continuingly be undermined by the growth in US shale oil. As a result, crude prices slid and investors took the opportunity to book profits, with long oil ETPs experiencing the largest withdrawal since early December 2016, totalling US$100mn.

Investors enamoured with technology ETPs sees 11th consecutive week of inflows. The tech sector continues to lead equity global performance, as tech earnings in the US have come in better than expected. The inflows into both cybersecurity and robotics themed ETPs totalled US$34mn, the largest inflows in 11 weeks.

US Dollar buying continues at the expense of the Euro, with 6th consecutive week of inflows. Although the market is fully pricing in a rate hike in the US at the Federal Reserve’s June meeting, the US Dollar continues to weaken. Last week, the US Dollar index (DXY) reached the lowest level since October 2016. Futures positioning has moderated in recent weeks, in line with the price weakness. In contrast, ETP investors have been optimistic, driving inflows into long USD ETPs for the 6th consecutive week. Inflows over that period have totalled US$57mn. At the same time, investors have been cutting positions from short USD ETPs, with withdrawals totalling US$15.3mn. Last week’s outflows were the largest from short USD ETPs since the first week in January 2017. The primary buying of USD came against the Euro which broke above key resistance at 1.12 level. Long Euro ETPS experienced the largest withdrawals in 20 weeks, while short Euro ETPs tallied the sixth consecutive week of inflows.

Industrial metals inflows reach seven year high. Investors have taken the stabilisation in metals prices as a signal to start bargain hunting in the sector. Speculative unwind has begun to ease and with signs of stabilisation in the Chinese economy and China’s authorities initiating new infrastructure programs. Broad industrial metals basket received US$42mn, the largest in seven years.

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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Euro benefitting from the US Dollar downside risk

Euro benefitting from the US Dollar downside risk

Fading political uncertainty in Europe alongside the improving growth profile is bolstering the Euro. Meanwhile, the US Dollar has failed to benefit in any significant way, despite the market pricing in a rate hike in June by the Fed. We expect that there is a downside risk for the US Dollar if the Fed disappoint in June, especially in view of FX market positioning. Euro benefitting from the US Dollar downside risk

Macron’s victory over Le Pen set the scene for a risk-on rally for European assets and particularly the Euro. Alongside the German state election win for the CDU, the decline in political uncertainty has reduced the risk of the collapse of Europe. The Euro could also experience further upside in coming months as the improvement in the Eurozone economic landscape prompts the ECB to begin discussing tapering the size of its balance sheet later in the year. Nonetheless, there is potential for some volatility for the Euro because the Italian – German 10yr government bond yield spread suggests there is still an elevated risk of a referendum on the country’s euro membership and potential early elections. Such volatility could Speculative positioning for the Euro is at the highest level in over three years and has turned positive for the first time during that period. Sustainably breaking above 1.10, could see the Euro begin to target to 1.15 level, a level that is more in line with real rate differentials.

(click to enlarge)

In contrast, there is a downside risk for the US Dollar if the US Federal Reserve disappoints investors by keeping rates on hold in June, contrary to market expectations. Fed communications have been even handed in recent weeks and we feel that the 75% (down from 95%) chance of a rate hike that is priced in seems elevated. Political uncertainty surrounding President Trump is also exacerbating the downward pressure for the USD. Policy paralysis remains the key risk for the Trump administration and any further delays could be reason enough for the Federal Reserve to wait until September for the next rate rise.

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.