Etikett: Yellen

Gold to benefit from a more dovish Fed

ETF Securities Gold to benefit from a more dovish FedGold to benefit from a more dovish Fed

ETF Securities Weekly Flows Analysis – Gold to benefit from a more dovish Fed

  • Gold, platinum and silver ETPs to benefit further from a more dovish Fed.
  • Industrial metals ETPs saw US$31.5mn of inflows amid growing economic activity in the US and Europe and a potential surge in global infrastructure spending.
  • Inflows into oil ETPs returned after a one-week break as US oil inventories decline further.
  • Outflows from long EUR ETPs on high futures positioning and long USD ETPs on Yellen’s testimony.

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Gold, platinum and silver ETPs to benefit further from a more dovish Fed. Last week saw US$82mn inflows in precious metals ETPs, led by gold (US$46.8mn), then silver (US$23.9mn), platinum (US$6.8mn) and the basket (US$4.1mn). Janet Yellen’s comments last week on inflation cast some doubts among investors on whether the US Federal Reserve (Fed) will continue hiking rates by another quarter point this year. US headline inflation for June fell by 0.1% while core inflation came as unchanged at 1.7%. The gold price, as a result, rose by 1.2% over the past week. We however remain cautious and see a small 2.3% increase in the gold price for year-end. The price of gold is also a key driver of silver and platinum prices. With no evidence of industrial demand recovery, we believe both industrial precious metals will continue to benefit from the demand for safe haven assets. We believe silver still has upside potential by year-end while we see palladium near the top of its potential.

Industrial metals ETPs saw another week of inflows as manufacturing PMI continues to grow in the US and in the Eurozone. Last week saw US$31.5mn in industrial metals amid growing economic activity in the US and Eurozone with manufacturing PMI at 57.8 in the US and 57.4 in Europe in June. Investors favoured exposure to the basket for its diversification benefit (US$24.1mn). While the Chinese market deficit of industrial metals has reduced by 17% compared to its level in April 2016 according to the World Bureau of Metal Statistics, we believe infrastructure spending in China and India needs to respectively double and triple in order maintain current GDP growth rate which should be price supportive for the entire complex.

Inflows into oil ETPs returned after a week break as oil inventories in the US decline further. Oil ETPs recorded US$12.9mn inflows last week on the back of falling oil inventories in the US by 7.5mn barrels. US oil production, on the other hand, rose for the second consecutive week and is only 2.3% below to its peak in June 2015. OPEC’s latest release also reported an increase in oil production, threatening the OPEC and non-OPEC agreement as some producers look to have opened the tap again. Compliance to the agreement dropped to 78% according to the IEA.

The Euro and US dollar hit by a shift in investors sentiment. Long EUR ETPs recorded US$8.6mn of outflows last week and short EUR ETPs US$3.3mn inflows. In the face of weak inflation pressure and futures market positioning at the highest level in over six years, we believe there are downside risks for the Euro. In addition, we expect the European Central Bank to remain cautious on the extent of the discussion over tapering at this week’s policy meeting.

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Can the Fed maintain its credibility?

Can the Fed maintain its credibility?

Market expectations for the Fed’s interest rate trajectory are now in line with the central bank’s ‘dot plot’, after being in sharp divergence in recent years. With the market pricing in an FOMC rate hike with almost certainty, the Fed’s credibility is on the line. Can the Fed maintain its credibility?

While we think that its third rate hike in the current cycle is long overdue, the stark change in rhetoric from Fed officials is surprising. Market pricing of a potential rate hike at next week’s FOMC meeting moved from 30% to over 90% in just three days after several hawkish speeches from Fed Board members, including Chair Yellen and Vice Chair Fischer. The real concern, however, that the Fed should have is the loss of credibility if it does not act after its hawkish commentary.

We remain unconvinced about the Fed’s voracity to hike rates aggressively as required as it has talked tough before and then not acted. Indeed, three rate hikes is only in line with market expectations and the Fed is only now regaining credibility, according to the Overnight Indexed Swap (OIS) market.

Although the US economic recovery remains robust, with the jobless rate now below pre-crisis levels, there are some indications that suggest that the Fed may not reach the three expected rate hikes. There is significant political uncertainty in Europe, which was a concern for the Fed in 2016 after the EU Referendum in the UK, and the US Dollar remains strong –another concern for the Fed in recent years. Meanwhile, the Bloomberg Financial Conditions Index shows that financial conditions in the US have tightened to the highest level in over two years.

Meanwhile, the anticipated USD strength after Fed commentary has not transpired. We feel that the risk is skewed to the downside for the dollar if/when the Fed hikes rates in March given recent moves and elevated investor positioning. We expect the USD to rebound if the Fed become more proactive and raise rates more quickly-than-anticipated in H2 2017.

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.

US Dollar setback after the FOMC, followed by a rebound

US Dollar setback after the FOMC, followed by a rebound

US Dollar setback after the FOMC, followed by rebound. We expect the Fed will raise rates at its December meeting (on Wednesday), but the tone of the statement and Chair Yellen’s press conference will be more neutral than previous rhetoric from Fed Governors, forcing the US Dollar (USD) lower. As a result of more toned down Fed rhetoric, we expect that the USD could experience a near-term setback on a ‘buy the rumour, sell the fact’ move after its second rate rise in its current tightening cycle. While a rate rise is currently fully priced in, we feel the market is overpricing the chances of the Fed raising its ‘dot plot’ for next year. We believe the Fed will retain the same ‘dot plot’ for rate hikes in 2017 (currently two hikes predicted) and strike a more neutral tone in its statement and at Chair Yellen’s press conference. With the Fed willing to run a ‘high-pressure’ economy next year, we expect the USD to suffer in Q1 as the central bank begins to lose its inflation fighting credibility. Strong economic data, particularly the ongoing buoyancy of the jobs market has driven the US Dollar higher in recent months against all G10 currencies. Investor positioning has surged since mid-October and is at the highest level since August 2015. This could quickly unwind – on a real yield differential basis the USD is currently beginning to look stretched against G10 currencies. With Trump policies likely contributing to inflationary pressure, alongside higher wage growth and upwardly trending core inflation factors like healthcare and housing, we feel the Fed will need to change its projections and be more aggressive in its tightening profile than what is currently envisaged. As the Fed comes to terms with having to be more active with monetary policy in mid-2017, we feel the USD could stage a rebound in the second half of the year.

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.

Räntehöjningen är nära nu

Räntehöjningen är nära nu

Federal Reserve kan komma att höja räntan ”relativt snart” om statistiken fortsätter att visa på en förbättrad arbetsmarknad och stigande inflation sade FEDs ordförande Janet Yellen under torsdagen. Hennes tal var en tydlig signal om att räntehöjningen är nära nu och att den amerikanska centralbanken kan komma att höja räntan nästa månad.

Yellen sade att FEDs beslutsfattare på sitt möte tidigare i november bedömde att förutsättningarna för en räntehöjning hade stärkts. Hon fortsatte med att säga att en sådan räntehöjning mycket väl kan komma att ske snart i det tal som var det första som hon hållit sedan USA valde Donald Trump till USAs näste president.

Yellen sade att den amerikanska ekonomin verkar växa måttligt, vilket skulle bidra till full sysselsättning och driva upp inflationen mot FEDs tvårprocentsmål. Hon sade vidare att den nuvarande räntepolitiken stimulerar den ekonomiska produktionen men ekonomin har fortfarande ”lite mer utrymme att köra.” Hon avslutade med att säga att hon för tillfället endast ser en liten risk att FED ligger bakom inflationskurvan, något som endast motiverar en gradvis höjning av styrräntan.

Markets contained following Trump upset

Markets contained following Trump upset

Trade Idea – FX Weekly – Markets contained following Trump upset

  • The market calm that has followed Trump’s victory is unlikely to persist in the medium term.
  • Political risks remain elevated in Europe and the shock result could garner momentum for anti-establishment populist parties ahead of key elections.
  • Safe haven assets and currencies are likely to remain well supported as uncertainty continues to characterise the financial landscape.

Against the odds

In a similar set up to the EU referendum, Donald Trump has managed to defy poll-based forecasts and betting odds to become the 45th president of the US. After capturing key electoral votes in swing states Florida and Ohio, Trump managed to secure victory in the early hours of Wednesday morning, shocking financial markets and sending risk assets tumbling. However in contrast to the aftermath of the EU referendum, the market moves that followed this shock result have been fairly muted (see Figure 1). Sharp rallies in safe havens assets during Asian trading hours were significantly tempered as a humble victory speech by Trump went some way to assuage market concerns and foster hopes of a more moderate President-elect. In the medium term, we do not expect the calm that has currently descended on markets to last, as elevated political uncertainty in the US and Europe sees risk-off sentiment dominate trading. This environment should continue to support the price of gold and keep safe haven currencies such as the JPY and CHF well bid against the US Dollar.

(Click to enlarge)

Policies unknown

The hope for many has always been that Trump’s controversial pledges made during his presidential campaign were merely aimed at garnering public support and were not a true reflection of his underlying political goals. His victory speech went some way towards this idea and assured investors of his intentions to pursue a more mainstream line as US president. However, the issue remains that aside from infrastructure spending, a considerable portion of his policies remain somewhat ambiguous. Should Trump emerge committed to protectionist policies and discriminatory immigration screening (ideas touted during his campaign), we would likely see an adverse market reaction as both policies would likely inhibit domestic and global growth.

Trump has also been a vocal critic of US Federal Reserve (Fed) chair, Janet Yellen, claiming that low interest rates have only been kept in place for as long as they have due to political influences. Should he promote a more hawkish approach to monetary policy in combination with his planned fiscal expansion, then in longer term the US Dollar is likely to receive support as long term US yields climb. However, for the moment this remains uncertain.

Populist contagion

Following Trump’s surprise victory it was reported that Marine Le Pen, leader of France’s far-right Front National party, was one of the first to congratulate the Republican candidate on his success. While this has no significance in isolation, it is an anecdotal reminder that Trump’s victory was another win for the anti-establishment that also prevailed during the EU referendum. The wider concern is that momentum mounts for nationalist parties in mainland Europe ahead of key elections scheduled in the next year. Should we see the likes of the Front National, Alternative for Germany and Five Star party gain in the polls in Europe then we may see some weakness surface for the common currency.

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

Currency ETPs

GBP Base

ETFS Long CHF Short GBP (GBCH)
ETFS Short CHF Long GBP (CHGB)
ETFS Long JPY Short GBP (GBJP)
ETFS Short JPY Long GBP (JPGB)

EUR Base

ETFS Long CHF Short EUR (EUCH)
ETFS Short CHF Long EUR (SCHE)
ETFS Long JPY Short EUR (SJPS)
ETFS Short JPY Long EUR (SJPL)

USD Base

ETFS Long CHF Short USD (LCHF)
ETFS Short CHF Long USD (SCHF)
ETFS Long JPY Short USD (LJPY)
ETFS Short JPY Long USD (SJPY)

3x

ETFS 3x Long CHF Short EUR (ECH3)
ETFS 3x Short CHF Long EUR (CHE3)
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 CHF Short EUR (5CH3)
ETFS 5x Short CHF Long EUR (5CHE)
ETFS 5x Long JPY Short EUR (EJP5)
ETFS 5x Short JPY Long EUR (JPE5)

Basket

ETFS Bullish USD vs G10 Currency Basket Securities (LUSB)
ETFS Bearish USD vs G10 Currency basket Securities (SUSB)

Physical Gold

ETFS Physical Gold (PHAU)
Gold Bullion Securities (GBS)
ETFS EUR Daily Hedged Physical Gold (GBSE)
ETFS GBP Daily Hedged Physical Gold (GBSP)

The complete ETF Securities product list can be found here

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