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Oil ETPs reach peak outflows

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ETF Securities writes that oil ETP outflows reached their highest level since August 2010 as investors take profit on a 15 per cent surge in prices. “There were USD126 million of outflows from long oil ETPs. OPEC’s landmark deal to cut production for the first time in eight years’ drove the market euphoria as participants responded to the headline cut of 1.2 million barrels per day. However, anyone looking at the details can see that OPEC is not committing to cutting 1.2 million barrels from today’s levels,” the firm writes.

The reference figures from which they are cutting from are inflated (compare to what was produced in October), ETF Securities says. “The main flaw of the agreement is that it exempts Nigeria, Libya and suspends Indonesia, but formulates a production target that includes them. It also contingent on non-OPEC countries cutting 0.6 mbd, which we consider very ambitious. ETP investors have taken profit as it is very likely that disappointment will sink in after the market has assessed the details.”

Turning to gold, outflows from gold ETPs accelerated to USD274 million – the highest since July 2015 – as the Fed’s December rate hike looms. “A string of positive economic data from the US including an upward revision to GDP, a surge in consumer confidence, ISM manufacturing reaching a five-month high and positive labour market data makes a December rate hike a near certainty. Gold’s traditional inverse relationship with real rates saw its price drop 0.5 per cent and investors sold out of long positions.

“However, we fear that many investors are missing a trick. Inflation is likely to surge in 2017 as prior weak commodity prices fall out of the index and the pro-growth policies that the market is so enthusiastic about start to generate price increases. A conservative Fed is likely to remain reluctant to hike too quickly to ward off these pressures, leading to low real rates. Moreover, the Italian referendum results highlight that political instability is rife and we expect as the US-centric focus of investors to changes in Europe, demand for haven assets will once again rise.”

Last week saw the pound climb 1.3 per cent against the Euro, driving USD11.9 million of profit taking. ETF Securities writes that market hopes of a ‘softer’ exit helped the UK currency rally to a 12 week high after UK Brexit Minister mooted the potential to access the single market post-Brexit for a price.
“This week the Supreme Court will undertake its hearing to decide whether the British Government can trigger Article 50 without a parliamentary vote. Although the results will not likely be announced until the new year, the uncertainty about whether the High Court judgment will be reversed could be another source of volatility.”

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