ETFS Multi-Asset Weekly A Turbulent Week for Investors – End of FED’s Asset Purchase Program and Upside GDP Surprise Drives Rally

Highlights

• Nickel rebounds
• Global equities cheer on upside US GDP surprise
• Stimulus from central banks remains a critical driver for FX performance

Even though the end to the Federal Reserve’s bond-buying programme was well anticipated, asset prices reacted strongly. Less dovish comments and the further emphasis on data underscore the market’s reaction. Gold and silver, widely viewed as alternative currencies fell, while stock markets rallied on better-than-expected US Q3 GDP results. US non-farm pay-rolls will be closely watched this week in an era of heightened data dependency.

Commodities

Nickel rebounds. Nickel bounced back 4.1% after excessive losses in recent months. With nickel trading significantly below its marginal cost, further price falls are untenable and we are likely seeing the beginning of a structural price rally that could be repeated across a number of industrial metals. Soybean meal and soybeans rose 4.9% and 3.0% respectively on reports of dry weather in Brazil, which could delay planting. Grain deliveries by railroad were down 2% according to the Association of American Railroads, accounting for some of tightness in the US despite record production. Corn rose 3.9% as a delay in US harvesting opens up the risk of crop damage if the corn remains in the ground too long. Gold fell 2.5% as the Fed ended its bond buying programme, dragging highly correlated silver and platinum down 1.7% and 1.4% respectively. Cocoa fell 5.4% with the “Ebola-premium” dissipating due to the absence of the virus in the key producer, Ivory Coast. Coffee also fell 3.0%, as prices moderate from the spike in September.

Equities

Global equities cheer on upside US GDP surprise. Led by the Russell 2000 small caps index, which rose 3.5%, most broad equity indices rose last week as investors upgraded their assessment of global growth. The IVSTOXX index fell 5.5% as recent equity market volatility got crushed. A key exception to the rally was the FTSE® MIB index, which fell by 1.0%, weighed down by structural challenges in Italy and Europe more broadly. The MSCI China A-Share index rose 3.0%, shaking off pessimism related to the delay in the opening of the Hong Kong-Shanghai Connect, as investors realise that it is a matter of ‘when’ and ‘not if’ the link opens. The ROBO-STOX® Global Robotics and Automation Index TR rose 1.9% as the robotics revolution, a megatrend to rival the industrial revolution and internet boom, gained traction.

Currencies

Stimulus from central banks remains a critical driver for FX performance, as evidenced by the moves in the Euro, Yen and US Dollar in recent weeks. This week the Australian dollar and the Euro move back into focus. Both central banks will be angling for a lower currency to help boost activity that is otherwise somewhat lacking, with the Reserve Bank of Australia likely to be more forthright in its signalling. As such the AUD could struggle this week. The FOMC began the subtle shift toward tighter policy with less dovish language, and the market viewed this as a positive result nonetheless. The key sentence that we highlighted in the FOMC preview was removed, with the Fed clearly indicating that the focus will be on the data – which has been robust in recent months. Meanwhile, the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels normal in the longer run. We remain bullish on the outlook for the USD as tighter monetary policy drives the currency higher against other G10 currencies..

Important Information

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