ETF Securities Commodity ETP Weekly – Fears of China slowdown causes a rollercoaster week of trade

Highlights

•  Oil ETPs see nine consecutive weeks of inflows.

•  Industrial metals ETPs witness highest outflows in 7 weeks, led by ETFS Copper (COPA).

•  Gold ETPs see the second consecutive week of inflows of USD$19.1mn.

•  Outflows from palladium ETPs continue for the fourth consecutive week.

•  Investors trimmed exposure to ETFS Agriculture (AIGA) by US$13.7mn, the highest level in 7 weeks.

Like most cyclical assets, commodities had an especially volatile week. Fears of a China slowdown following an equity market rout, led to the initial commodity price declines. However, the Bloomberg Commodity Index ended the week higher, driven by gains in oil and copper. Oil prices marked their strongest three day rally since 1990 after speculation the Organization of the Petroleum Exporting Countries may be considering cutting production. All eyes will be on the latest US jobs data and guidance by the ECB policymakers on quantitative easing amidst the global market rout.

Oil ETPs see nine consecutive weeks of inflows. After nose-diving to their lowest levels since 2009 last Tuesday, WTI and Brent crude oil prices staged their biggest one day surge on Thursday advancing 10 percent to US$43.5 and US$48.5 respectively. Over the past three trading sessions, WTI oil has surged 27% on hopes that OPEC will consider cutting production. Long oil ETPs attracted US$60.1mn after better than expected US GDP data revived hopes of strong demand. In addition, Royal Dutch Shell Plc’s force majeure on 2 pipelines cutting shipments from Nigeria and a decline in US crude oil stocks by 5.5mn barrels last week lent support to oil prices. ETFS Daily Leveraged Natural Gas (LNGA) saw its second week of inflows (of US$2.7mn) as bargain hunters attempt to capture any price recovery before the high demand summer driving season draws to a close.

Industrial metals ETPs witness highest outflows in 7 weeks, led by ETFS Copper (COPA). Despite copper ending the week higher, its volatile price and fears of a China slowdown led to US$16.5mn redemptions in COPA. Codelco, the world largest copper producer was the latest to join the industry wide effort to reduce capex as prices hover around 6 year lows.

Gold ETPs see the second consecutive week of inflows of USD$19.1mn. Gold maintained its safe haven status amidst the volatility in cyclical assets. Investors bought US$15.2mn physical gold ETPs last week. Despite the futures market and consensus expectations for a US rate increase being pushed out, gold fell 2.5% as a stronger-than-expected GDP reading for Q2 2015 underscores the strength in the underlying economy.

Outflows from palladium ETPs continue for the fourth consecutive week. Futures market net speculative long positions in palladium have dropped to a 3 year low at 5700 contracts highlighting how the fears of a weakening Chinese economy are denting demand for the most industrialised precious metal.

Investors trimmed exposure to ETFS Agriculture (AIGA) by US$13.7mn, the highest level in 7 weeks. Sugar was the best performer among commodities as wetter weather in Brazil and fears of the El Nino impacting production in India and Thailand lent support to price. Hot dry weather impacted EU supply, benefiting corn prices as the International Grains Council (IGC) forecasted a supply deficit of 4mn tons. Wheat prices came under pressure as the IGC predicted an annual surplus of 4mn tons as global wheat production is expected to reach last year’s record level 10mn tons.

Key events to watch this week. The ISM Manufacturing Index, the Federal Reserve’s beige book and the jobs data released remain in focus. Positive surprises in these indicators could provide insight into Federal Reserve’s interest rate trajectory.

Video Presentation

Aneeka Gupta, 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

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