ETF Securities’ weekly flows report details bullish inflows for US Dollar ETPs ahead of the FOMC meeting, totalling USD4.1 million.
The firm expects that the US Dollar could experience a near-term setback in a ‘buy the rumour, sell the fact’ move following the Fed’s second rate rise in the current cycle. While a rate rise is fully priced in, we feel the market is overpricing the chances of the Fed raising its ‘dot plot’ for next year.
For the second consecutive week, oil ETP outflows continued totalling USD55.5 million. ETF Securities writes that investors appear to be questioning the ability of OPEC to implement its landmark deal to cut production for the first time in eight years. If implemented in full (alongside non-OPEC cooperation), the headline cut of 1.2 million barrels per day would be a positive move to stabilise oil prices by balancing the market.
However, the reference figures for the cuts are inflated and additionally, OPEC has long had a problem with quota enforcement. Under prior quota regimes, Saudi Arabia was relied on to be the country to balance the equation – it appears that this may no longer be the case. Nevertheless, with global oil prices remaining at a level which will encourage greater non-OPEC production, the current oil price is at the upper end of our current expected range.
For a fourth consecutive week, outflows from gold ETPs continued totalling USD153.3 million, as the Fed’s December rate hike looms. A greater ‘risk-on’ mindset from investors, accompanied by a stronger US Dollar as the US Federal Reserve (Fed) prepares to hike rates for the first time in 12 months has weighed on the price of gold.
ETF Securities writes: “Nonetheless, we expect the real rate environment to remain depressed as the Fed gets further behind the curve in 2017 as inflation accelerates, and such an environment will remain supportive of gold. Alongside wage growth, the pro-growth policies that the market is so enthusiastic about are likely to be inflationary. A conservative Fed is likely to remain reluctant to hike too quickly to ward off these pressures, leading to a prolonged period of low/negative real rates. Outside the US, central banks continue to pump ever greater amounts of money into the financial system, in turn enhancing the appeal of gold for non-US investors, as monetary policy debases fiat currency.”
Turning to agriculture, agricultural ETPs received their largest inflows in six weeks, led by broad basket exposures. Broad agricultural basket ETPs received USD16.4 million, while long corn ETPs received USD4.8 million, the most in a month. ETF Securities writes that nonetheless, the fundamental picture hasn’t changed significantly, giving them no reason to be bullish about future price gains.