Overview: Both cyclical and defensive assets rallied after the Federal Reserve surprised the market by failing to taper its massive bond-buying programme last Wednesday. Defensive assets like gold moved up as investors now…
ETF Securities Research
foresee potentially longer period of US Dollar debasement than they previously assumed. Meanwhile cyclical assets moved up on the hope that longer stimulus will ensure the economic recovery remains robust. The Fed indicated the primary reason for delaying tapering was lower growth projections resulting from financial market conditions (most notably higher bond yields) adversely affecting the real economy. With large portions of its post-meeting statement having changed from its previous one, the Fed has signalled the need for a broader improvement in economic conditions before its stimulus is withdrawn. Expectations for a more supportive Fed stance were also reinforced by the likely nomination of Janet Yellen as the next Fed Chairman.
Commodities: Fed tapering delay spurs commodity rally. Both cyclical and defensive metals benefited from the Fed’s decision to delay tapering. While platinum remained in the doldrums following poor EU car sales, palladium rallied 5.2%. With the US having to approve a budget and avert a government shut-down, investors are increasingly likely to look to gold as a portfolio insurance vehicle. Brent oil fell 2.5% as fears over supply tightness faded. Geopolitical concerns in the Middle East subsided after the UN Security Council convened to draft a resolution that will rid Syria of chemical weapons without immediate air-strikes. In addition Libyan production is reported to have recovered back to 40% of its pre-war capacity, from a near total shut-in earlier this month. At the same time Saudi Arabian output is at near record levels according to the International Energy Agency.
Equities: Gold miners found strong support last week as the decision to taper QE was postponed. With the consensus clearly expecting the Fed to reduce its bond buying activities, the decision to maintain its existing policy surprised the market. Most asset classes reacted positively to the announcement as the FTSE® MIB Leveraged Index rallied over 6% last week, while the LevDAX® x2 Index rose 4.7%. However, the big winner of the week was the DAXglobal® Gold Miners Index, which surged 8.3%. Gold mining companies not only benefitted from the equity market rally, but also from the rise in the gold price, which jumped 2.8% last week. Gold miners have rebound 29% since the index reached a 5-year low in June. While the Fed has indicated the course of its policy remains ‘data dependent’, consensus clearly favours tapering before the end of 2013. Our view of a more favourable economic environment (and gradual removal of accommodative policy) supporting demand for cyclical assets remains in place.
Currencies: Indian Rupee surges on surprise rate hike. The Indian Rupee continued to rebound, and was the best performing currency index in the exchange traded segment. Investors continue to respond to the strong stance from the Indian central bank, after the Reserve Bank of India unexpectedly tightened monetary policy by hiking rates in the face of ongoing inflationary pressures.
USD continues lower in the wake of FOMC disappointment. As we highlighted last week, the US Dollar weakened against most G10 currencies last week after the US Federal Reserve surprised the market by keeping the status quo with its stimulus policy. The beneficiaries of the more positive investor sentiment have been those G10 currencies that have lagged in recent months, like the Australian dollar and Swedish Krona.
This 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 FCA 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.
This communication constitutes an advertisement within the meaning of Section 31 para. 2 of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG); it is not a financial analysis pursuant to Section 34b WpHG and consequently does not meet all legal requirements to warrant the objectivity of a financial analysis and is also not subject to the ban on trading prior to the publication of a financial analysis.