The latest multi-asset weekly report from the ETF Securities Research team concludes: “The global recovery rumbles onward, but the pace is slowing, weighing sentiment. Elevated volatility is a key feature across asset classes.”
In commodities, ETF Securities comments that inventory build sees oil prices sink again, as USD strength weighs on precious metals. “The U.S. Energy Information Administration reported another build in US oil stockpiles last week, prompting WTI crude prices to fall to the lowest level since end-March 2015” the firm comments.
Meanwhile, the stronger US dollar is having an adverse affect across the commodities, space but precious metals, in particular, due to their strong monetary connection are feeling the pressure more than others. The firm comments: “Tighter markets for platinum group metals should help stem the price declines. South Africa’s largest platinum miner Lonmin has announced closures to some of its mines, expecting to reduce production by 100,000 ounces of metal in 2015/16 – around 2 per cent of total global mine production. The company indicated that at current price levels, the company is a loss making entity and cost minimization efforts are designed to turn the situation around.”
In terms of equities, ETF Securities turns to China where Chinese equities have slumped again, as mixed earnings see developed market equities trade choppy ranges. “Positive sentiment about Chinese intervention appeared to fade in early trading this week, with a sharp sell-off in Chinese equity benchmarks” the team says. “Policymakers must tread a fine line between restoring confidence in local markets with domestic investors and convincing foreign investors of reforms that make markets more transparent and less susceptible to manipulation.”
The firm expects that a relaxing of restrictions will be gradual but inevitably encourage more participation and greater stability. “Q2 developed market earnings have been mixed, and combined with ongoing unease over Greek bailout discussions, European equity gains have faded over the past week. The discussions concerning the method of financing another Greek bailout are likely to be prolonged, and investors will remain on edge to see if depositors and/or bondholders need to take haircuts in the bailout process.”
Turning to currents, ETF Securities expects that the Fed will continue to be balanced in its rhetoric and highlight the gains made in the jobs environment. “There is an interesting divergence between market pricing and economic consensus on when the Fed will raise rates: the former is pricing a November hike, while economists expect a September tightening. Accordingly, we feel that as the market begins to price in a
September hike, USD will benefit. The brief respite for commodity currencies is unlikely to last. With negative sentiment prevailing over fundamental conditions, we expect the recent rebound in commodity currencies is unlikely to last in the near-term. Weaker oil prices are weighing on CAD and NOK, while central bank rhetoric and negative China sentiment is pressuring AUD and NZD.”