Commodity ETP Weekly- All Eyes on the Federal Reserve

Highlights

•    Oil ETPs inflows resume. On the 14th September we will be hosting a webinar to discuss where next for the oil price –
•    Agriculture ETPs see inflows ahead of WASDE report.
•    Industrial metal price bounce drives profit-taking.

The US Federal Open Market Committee will convene this week to discuss raising interest rates. We don’t believe they will pull the trigger on this occasion, given the uncertainty surrounding the deceleration of China and Europe and elevated financial market volatility. The last time the central bank increased rates was in 2006 and will not take this decision lightly. A policy reversal will be costly for the Fed’s reputation and we think the central bank will err on the side of caution while it assess whether these risks are likely to drive price expectations lower or hurt labour market prospects. A surprise rate rise could be gold price negative.

Oil ETPs inflows resume. After a week’s break, oil ETPs continued to see inflows with US$12.5mn of creations. Falling prices drove bargain hunters into mainly WTI ETPs. A surprisingly high inventory build last week pushed WTI prices lower. However, the IEA in its latest oil market report expressed its view that crude supply from non- OPEC countries will decline by the most in two decades. The decline of 0.5mn barrels per day will mainly come from Russia, North Sea and USA. Current low prices have boosted demand and therefore the “call” on OPEC will rise. With OPEC spare capacity running lower, the potential for a shock to translate into substantially higher prices remains elevated.

Agriculture ETPs see inflows ahead of WASDE report. With El Niño conditions intensifying to the worst level since 1997 and the possibility of it becoming the most extreme on record, interest in agricultural ETPs has resumed. Wheat and corn ETPs saw inflows of US$4.3mn and US$1.1mn respectively ahead of the WASDE report. The US winter wheat harvest is now complete and the USDA is finalising its estimate of the crop. The Australian wheat season is underway and could be impacted by the El Niño weather pattern, which could reverse some of the ample rain the country has seen recently. US corn is currently in a stage of growth that is vulnerable to weather changes. On the 15th September CONAB will release its Brazilian coffee harvest estimate. This report will end months of speculation about the size of the crop. There has been heightened uncertainty because of the highly volatile weather the country has experienced this season. While a drought early in the season was thought to have led to a poor a crop, late rains and then warmth bought by the El Niño suppressed frost damage, likely driving production higher than initially thought. We are likely to see a relatively sizeable crop albeit of lower quality. Coffee ETPs saw US$2.5mn of inflows.

Industrial metal price bounce drives profit-taking. Nickel, copper and palladium (an industrially-inclined precious metal) rose 4.4%, 2.9% and 1.0% respectively, completely reversing the losses from 2 weeks ago. The market has released that the fears of a China-led slowdown in industrial metals has been overdone. However, the bounce in prices drove outflows from nickel, copper and palladium ETPs of US$1.1mn, US$6.7mn and US6.5mn respectively.

Key events to watch this week. In addition to the Fed, The Swiss National Bank and Bank of Japan, two other policy makers of haven currency countries will host their respective monetary policy meetings, revealing their interpretation of recent financial market turmoil. Brazil’s CONAB will reveal just how large the coffee harvest this season has been..

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

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This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.