Commodity Monthly Monitor – Commodities slide as investors misread policy signals
August/ September 2015
Confusion around China’s currency policy drives volatility across the commodity complex. With many market participants thinking the change in Chinese currency policy was a competitive devaluation rather than a move to introduce more market dynamics, fears that the authorities have become desperate to reignite economic growth has led to a sell-off in cyclical commodities. At the same time, the gold price has benefited, reversing some of the negative sentiment towards the metal we have seen in past months. As the dust settles, we believe that industrial metals will grind higher as supply tightens and the market realises that Chinese demand is not bad as feared. Although consensus expectations are for a Federal Reserve rate hike in September, recent Fed minutes indicate it is not a sure thing and so some of the US dollar pressure on commodities may ease. The capitulation in oil prices has driven demand higher and will likely provide high-cost producers the incentive to cut back on production. US$200bn of capex cuts have announced across the oil and gas sector, which will help the market come closer to balance as we move toward year-end and into 2016.
Strengthening El Niño to become a catalyst for wheat, corn, cocoa and sugar prices in coming months. While plentiful supplies have led to wheat, corn and sugar price declines over the past month, an intensifying El Niño is likely to impact sensitive growing periods for these crops and drive prices higher.
Uncertainty around Chinese currency policy reinstates gold’s haven status. In recent weeks gold has increased as China’s change in currency policy caught investors off-guard. That contrasts the waning defensive role of the metal during the worst of the Greek financial crisis.
Negative sentiment surrounding the Chinese growth outlook weighs on industrial metals. Renminbi depreciation has prompted speculation that the outlook for economic growth will not favour Chinese metal demand. At the margin the stronger US Dollar has also adversely impacted industrial metals prices.
Oil prices capitulate as OPEC production hits a 3-year high. Higher OPEC production and rising US rig counts have driven prices sharply lower. We believe that these low prices are likely to drive non-OPEC, non-US, high-cost production down, shifting global market share.
For more information contact:
This communication 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 FSA 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.
Other than as set out above, investors may contact ETFS UK at +44 (0)20 7448 4330 or at email@example.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.
Securities issued by each of the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A., Deutsche Bank AG any of their affiliates or anyone else or any of their affiliates. Each of UBS AG, Merrill Lynch Commodities Inc. (”MLCI”), Bank of America Corporation (”BAC) or any of their affiliates. UBS AG, MLCI and BAC, Shell Trading Switzerland, Shell Treasury, HSBC Bank USA N.A., JP Morgan Chase Bank, N.A. and Deutsche Bank AG disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith.
”Dow Jones,” ”UBS”, DJ-UBS CISM,”, ”DJ-UBS CI-F3SM,” and any related indices or sub-indices are service marks of Dow Jones Trademark Holdings LLC (”Dow Jones”), CME Group Index Services LLC (”CME Indexes”), UBS AG (”UBS”) or UBS Securities LLC (”UBS Securities”), as the case may be, and have been licensed for use by the Issuer. The securities issued by CSL although based on components of the Dow Jones UBS Commodity Index 3 month ForwardSM are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes, UBS, UBS Securities or any of their respective subsidiaries or affiliates, and none of Dow Jones, CME Indexes, UBS, UBS Securities, or any of their respective subsidiaries or affiliates, makes any representation regarding the advisability of investing in such product.