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ETP Weekly: Short natural gas etps see inflows as us natural gas price hits four year high

There was a general risk off move in markets last week that has continued into the new week. Devaluation and financial crisis in Argentina, a weaker than expected preliminary reading for January China PMI and concerns about a potential default on a …..


ETF Securities Research


China wealth management product weighed on markets last week, hitting industrial metals and benefiting gold. At the same time, record cold temperatures in the US drove the Henry Hub natural gas price to a four year high and boosted oil prices. Investors appear to believe the price rallies have gone too far, with investors cutting their long positions in natural gas and oil ETPs and starting to build up positions in short natural gas ETPs.
Short natural gas ETPs see inflows as US natural gas price surges to four year high.
Investors appear to believe the natural gas price rally has gone too far after the 8% jump in the US Henry Hub benchmark last week on the back of the US east coast experiencing the coldest weather in over 100 years. Long natural gas ETPs saw US$18mn of outflows while ETFS Daily Short Natural Gas (SNGA) ETP saw US$6mn of inflows. Profit-taking also drove US$29mn out of long crude oil ETPs, with the outflows evenly distributed between WTI crude and Brent ETPs.
ETFS Daily Leveraged Silver (LSIL) sees largest inflows since October as investors favour the metal’s hybrid characteristics. At the same time, long gold ETPs saw US$35mn of outflows as the gold price hit a 2-month high last week as emerging markets risk aversion surged and investors moved into perceived safe havens. Thomson Reuters GFMS reported that it expects gold demand to fall by 8% in the first half of 2014, compared to H2 2013, driven by lower jewellery demand and central bank purchases. However, should the gold import ban in India be lifted as some expect, these forecast declines would likely be more than offset. Meanwhile, platinum miners belonging to the South African Association of Mineworkers and Construction Union (AMCU) went on strike on Thursday. Both platinum and palladium prices rallied strongly on the news.
ETFS Daily Leveraged Sugar (LSUG) sees inflows as investors believe price has bottomed. The sugar price continued its downward trajectory last week, briefly falling below US$0.15/lb for the first time in more than three years. Below average rainfall in the Centre South region of Brazil may pose a threat to the expected record sugarcane crop this year.
With the current price reflecting record crop expectations, a downward revision to production would likely trigger a sugar price rally. At the same time, prospects of a 5% fall in Brazilian coffee production prompted US$3.3mn of inflows into long coffee ETPs last week. We believe the Arabica price could rise to US$1.35/lb, 17% above current levels. Long wheat ETPs US$2mn of inflows following sharp price falls.
ETFS Nickel (NICK) records another week of inflows on Indonesia’s export ban. The nickel price jumped nearly 3% over the past month ahead of Indonesia’s export restrictions that came into effect on January 12. We expect the nickel price to rise back towards the high end of its recent US$13,000 to US$15,000 per tonne price range.
Key events to watch this week. This week, the focus will likely be on the US FOMC meeting and rate decision announced Wednesday, as investors fear further tapering might be announced. Precious metals – particularly gold – would likely benefit from a delay in increased tapering or strong dovish comments from the Fed as well as further emerging market turmoil. US company profit results, how Argentina fares following its devaluation and China deals with its still-high money market rates and the potential default of a wealth management product will also potentially impact general market sentiment during the week.

 

Source: ETFWorld.fr

 

Commodities

Although gold often gains during extreme events, the start of the first US Federal shutdown in seventeen years last week failed to lift the gold price. Investors appear to be looking through the storm and are focused on assets that will either benefit from the continuation of the global growth recovery or are generally uncorrelated with debt risk.  Cotton and sugar gained 2.3% and 1.8% last week, bouncing from lows hit in September, but without strong news driving the trend. Platinum and palladium fell 3.6% and 2.5% respectively. That comes despite a 17% rise in Japanese auto sales (to a 14-month high) and a 12.1% rise in UK car sales (to a five-year high). US car sales also remained brisk, despite the timing of Labor Day distorting the monthly statistics. Autocatalyts are the primary source of demand for the platinum group metals (PGMs). The strike that started two weeks ago was still on-going last week at Amplats, constraining the supply of PGMs.

    MA Weekly 07.10.13 1

Equities

US equities remain under pressure as the negotiations over raising the US debt ceiling continue. The S&P 500 fell for the second consecutive week as Republicans and Democrats continued to fight over the budget and debt ceiling. European equities have also been sensitive to the political turmoil in the US. The Euro Stoxx 50® Investable Volatility Index, which provides exposure to the forward implied volatility of the Euro Stoxx 50® Index, surged 5% last week, followed by the FTSE® MIB Super Short Strategy Index and the ShortDAX® x2 Index, up 3.5% and 1.4% respectively. Global equities are likely to remain volatile and under pressure as we get closer to the estimated 17 October hard deadline for lifting the debt ceilding.

MA Weekly 07.10.13 2

Currencies

Safe haven currencies benefit as US fiscal negotiations drag on. The Japanese Yen (JPY) was the best performing G10 currency last week as investors sold risky assets and paid back JPY loans on growing concern about the lack of progress on US fiscal and debt negotiations.  For similar reasons the Swiss Franc (CHF) and even the Euro (EUR) also rallied against the US dollar last week. The British Pound (GBP) held up, continuing the trend of the past three months. However, towards the end of the week the currency showed some weakness, indicating the rally may be peaking. In our view, the GBP is one of the more overvalued G10 currencies and – despite recent rhetoric – has one of the more dovish central banks. We therefore believe the currency is particularly vulnerable to a sharp drop once growth data stop surprising to the upside.

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