Commodity ETP Weekly: Tapering delay spurs commodity rally


Most commodities 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 foresee more…

    ETF Securities Research

    US Dollar  debasement  than they previously assumed. Meanwhile cyclical commodities 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previous one, the Fed has signalled a the need for a broader improvement in economic conditions before its stimulus is withdrawn.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. The move upward in commodity prices was accompanied with inflows into both cyclical and defensive ETPs, however the outflows ahead of the FOMC, dominated overall flows for the week.  Markit manufacturing  PMI numbers released  earlier  today  were mixed, with Chinese figures beating expectation while European numbers falling short of expectations.  
    Investors begin rebuilding gold ETP positions following the Fed’s policy decision. With only one business day in our reporting period after the Fed’s policy decision, the weekly data does not  show the extent of enthusiasm investors displayed in the latter half of the week.  Over US$55mn  flow into physical gold ETPs on Thursday, and over US$22mn on Friday. But for the week  (to Thursday), there were US$196mn outflows from physical gold ETPs. Some investors, who believed that the inevitable  tapering  has just been  merely  delayed, may not rebuild positions immediately. However 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.
    Long crude oils ETPs outflows reach six-week high of US$12.3mn, as fears over supply tightness abate. With geopolitical concerns in the Middle  East having  subsided after the  UN Security Council convened to draft a resolution that will  rid Syria of chemical weapons without immediate air-strikes, fears over potential supply tightness have also faded away. 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.
    Platinum ETPs record 11th  consecutive weekly outflow on disappointing European car sales data. European car sales fell to the lowest level since 1990 in August. Investors hoping for the small uptick in sales attained in July to be sustained were disappointed. Platinum is used in the manufacture of diesel autocatalysts which dominate the European vehicle market. The gloomy outlook for Eurozone vehicle sales prompted investors to withdraw US$5.2mn from ETFS Physical Platinum (PHPT) and US$6.9mn from ETFS Platinum Trust (PPLT).
    Investors  unwind  US$7.3mn short  aluminium  bet.  Optimism that followed the Fed policy announcement  likely prompted  investors to cut back on their short positions in aluminium. Meanwhile, Rusal, the Russian aluminium producer, has called on the industry to coordinate a reduction in production, which if achieved, could help provide some price support.  
    Key events to watch this week. Markit US manufacturing Purchasing Manager Indices  to  be released  later today,  will be closely watched to gauge the strength of the  industrial  recovery.  Consensus expectations centre on a small upward revision to the third reading of US Q2 GDP. US core PCE inflation in August is likely to have remained tame at 1.3% according to consensus estimates, helping  strengthen  the case for delaying tapering.



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