Rising Middle East risk sparks jump in Brent oil ETC demand while US recovery drives largest palladium ETC inflows in a year…
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Last week ended on a strong note, with US payrolls data coming in much stronger than expected and the US manufacturing ISM up for the 3rd consecutive month. The strength of the US rebound has helped drive cyclical assets higher this year and improved risk appetite. Large potential risks continue to loom however, keeping investors on edge and demand for risk hedges high. Concerns about deteriorating political conditions in the Middle East has kept oil ETC demand high with demand for front-month Brent particularly strong last week. Also continuing to brew in the background is continued lack of agreement on Greece’s debt restructuring, with negotiations continuing to drag on. Fears of a possible disorderly default and expectations of further monetary easing by the world’s main reserve currency central banks has kept gold demand strong. Better than expected PMI data from China, coupled with supply disruptions in South Africa caused palladium ETCs to record their biggest inflows in over a year. This week investor focus will likely be on the European Central Bank and Bank of England rate announcements as investors anticipate a more aggressive easing. Negotiations on Greece’s debt will also be watched closely as lack of agreement keeps markets on edge.
Precious metals ETCs see largest inflow in 2 months, with gold and palladium in favour. Gold ETCs recorded US$34m inflows last week, with ETFS Physical Gold (PHAU) receiving the bulk of the flows (US$28m). Speculation of further monetary easing in the US, Europe and China, combined with the lack of agreement at the EU Summit last Monday prompted another week of inflows into gold and provided further support to the bullion price. Long Palladium ETCs saw US$41m of inflows, the largest in over a year. Positive investor sentiment on the back of higher than expected Chinese manufacturing PMI, strong US growth and potential supply disruptions following Impala Platinum’s dismissal of 17,200 workers last week, prompted a new wave of PGM buying.
Brent oil ETCs see largest inflows in a year as investors hedge rising Middle East risk. ETFS Brent 1mth (OILB) saw US$13m inflows last week, the largest since the ‘Arab Spring’ unrest in early 2011. The current premium of Brent over WTI is being mainly driven by supply risks associated with the geopolitical uncertainty in the Middle East, while rising stocks in the US contain WTI price performance. Anticipation of cold weather in the US prompted biggest inflow into natural gas ETCs in 6 months, with inflows up US$30m. ETFS Leveraged Natural Gas (LNGA) received US$26.4m last week. Colder weather in the US lifted prices off recent 10-year lows on expectations that the large inventory overhang may be partially unwound.
Industrial Metal ETCs see the largest inflows since May, amounting to US$19m, as recent manufacturing data suggests that China is “soft landing” and US recovery continues. ETFS Forward Industrial Metals (FIND) was the preferred exposure with inflows up US$16m, the largest since July.
Source: ETFWorld – ETF Securities
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