ETF Securities reports significant inflows to industrial metal basket ETPs
Aneeka Gupta, associate director, equity and commodities, ETF Securities, writes that last week saw the industrial metal basket ETPs take the lion’s share of inflows, worth USD52.8 million extending last week’s trend of positive inflows.
“Caught in the cross fire of geopolitical trade wars, industrial metals as a group declined by 3.77 per cent last week. Industrial metal prices also faced headwinds from weak Chinese economic data. Fixed asset investments grew by only 6.1 per cent while industrial production grew by 6.8 per cent in May according to National Bureau of Statistics (NBS).
“Bargain hunters appeared to take advantage of the price weakness as industrial metal basket ETP flows surged the most since December 2017. In retaliation to the US tariffs, China’s Finance Ministry has imposed an additional 25 per cent tariff effective on July 6 on a list of 545 product categories, covering nearly USD34 billion in exports from the US.
“The list includes automobiles and agricultural products that might have an effect on manufacturers. Most metal markets continue to remain in deficit and we expect the current trade tariff’s to continue to generate considerable uncertainty within the supply chain.”
Gupta reports that gold ETP outflows surged by USD41.4 million last week, reversing the prior two week’s trend of inflows after hawkish comments by the Federal Reserve .
“The stronger US dollar coupled with a more hawkish Federal Reserve, underpinned the weakness in gold prices that were declined 1.81 per cent last week. Geopolitical risks that were previously supporting gold prices faded as the divergent interest rate policy projections at the key central bank meetings last week took centre stage. While the Federal Open Market Committee (FOMC) delivered another quarter point rate hike in the Federal Funds rate, this was largely priced in by markets.
“However, the Fed’s forward guidance on its interest rate trajectory took the markets by surprise. The Fed’s dot plot moved higher marginally in favour of two additional rate hikes this year, so four in total. Interestingly, it also anticipated a further three rate hikes of 25Bps in 2019 as the US economic outlook remains positive. Gold, that does not yield any interest came under significant pressure from the Fed’s more subdued outlook on inflation.
“The spread between the US two and 10-year yields declined to 38Bps its lowest level since 2007 reflecting the markets conviction in near term growth projections versus the future. In sharp contrast a day later, the European Central Bank (ECB) President Mario Draghi provided a more dovish forward guidance with no change in interest rates until the summer of 2019. The ECB remains far from normalizing policy, this lent further buoyancy to the US dollar as the Euro declined sharply adding further pressure on gold prices.”
Crude oil ETPs received USD9 million of inflows last week, Gupta says, reversing the trend of outflows witnessed over the last nine consecutive weeks.
“Oil prices are being dominated by rumours surrounding production cuts to be announced at the OPEC meeting in Vienna next week on June 22. Saudi Arabia is expected to raise production gradually however Venezuela and Iraq are not in favour of raising production according to sources close of OPEC.”
European equity ETPs witnessed outflows worth USD9 million for the third week in a row. Dovish signals from the ECB helped European equities recover 1.04 per cent last week, Gupta says. Profit taking appears to have driven outflows from European equity ETPs. The Euro slipped 1.35 per cent versus the US dollar last week, helping European equities recover, as nearly 50 per cent of revenues on European indices are generated internationally.