Overview: Cyclical assets, including industrial metals and equity markets continued to rally last week. The better-than-expected US jobs data and rising Chinese PMIs were key catalysts to growing optimism about the state of the global…
ETF Securities Research
economy. Consensus is looking for a broad improvement in lending and money supply data from China that may be released this week. The Euro area, considered by many as the laggard when it comes to the global economic recovery, received some more firepower from the European Central Bank as it fleshed out more details about its upcoming targeted long-term repo operations. We remain bullish cyclical commodities, equities and the US dollar, particularly versus the Euro.
Commodities: The nickel price correction in May and June proved to be short-lived, with prices rising 6.2% just last week. Over the past six months prices have rallied 41%. While we believe that nickel may continue to benefit from near-term momentum buying, stretched positioning and elevated inventories could cap further price rises. Given positioning and sentiment, we view copper as a less risky way to play the rebound in global growth. Last week the copper price rose 2.6% last week, indicating the market may have shaken off the negative sentiment from the probe into fraudulent China copper financing deals and is ready to assess the market on underlying supply-demand fundamentals. Platinum and palladium are also expected to continue to benefit from the improving growth outlook. Agriculture has been underperforming recently. However, the growing likelihood of a possible El Nino weather event later this year may reverse this trend.
Equities: Global equities rebound on better-than-expected employment data, China A shares up for second consecutive week. Last week saw leveraged European equity indices rebound 4.3% on average, nearly offsetting previous week losses, as the Eurozone unemployment rate came below expectations. US employment data also provided a boost to the US small cap equities with the Russell 2000 Index up 2.3% over the past week, outperforming the S&P 500 by 58%. Meanwhile the MSCI China A Index which reflects the performance of Chinese companies listed in mainland China, has kept on pace rising 2% for the second consecutive week as data releases and further policy easing measures continue to boost sentiment.
Currencies: Short Scandinavian currency ETPs rally as central bank surprises with rate cut. The Swedish Riksbank cut rates by 50bps last week, a surprise move as the latest inflation figures showed prices falling by 0.5% in May. The Swedish krona, SEK, was the worst performing G10 currency last week, with the Norwegian Krone not far behind. If the Norges Bank follows the move at its meeting at the end of July, expect further weakness. Meanwhile, the USD had its biggest weekly gain in over a month as job growth surged, indicating the economy remains on a steady growth path despite recent concerns after weak GDP data. The Fed’s minutes will be closely watched this week for rate guidance. The Euro continued to slide as the ECB reiterated its support for the economy. While the Euro is not a policy target, further policy easing will likely push it down further benefiting short EUR ETPs.