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Thematic equities dominate week says ETF Securities

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Morgane Delledonne, ETF Securities Fixed Income Strategist, writes that thematic equities such as robotics and cyber security saw USD27.3 million in inflows last week, pushing the robotics inflows to a total of USD81 million year to date, of which USD52 million has arrived month to date.

Energy ETPs saw investors take profits last week, withdrawing USD23.3 million. This came on the back of an announcement from the International Energy Agency (IEA) that oil supplies fell by around 1.5 million barrels per day (bpd) last month, including by 1 million bpd reduction from OPEC. The OPEC cut compliance of 90 per cent of pledged oil output curbs in January.

However, Delledonne writes that the massive increase in US crude oil imports (to a four and a half year high) and the trend increase in rig count in the US partly offset the reduction in oil supply, suggesting energy prices overextended recently. The firm believes that investors took profits as there is a limited upward potential in prices over the medium term.

Turning to gold, inflows into gold ETPs continue as price returns to November 2016 levels. “We saw USD8.2 million inflows into gold ETPs as the price of gold briefly touched USD1240/oz (up from USD1220/oz the week before). The 10bps decline on 10yr US Treasuries yields at the beginning of last week supported gold. We believe that the high degree of geopolitical uncertainty will limit downward pressures on gold prices,” Delledonne writes.

Strong inflows in cocoa of USD6.4 million last week suggest tactical buying as the price fell to a five-year low. The 6.3 per cent price decline last week brought the cocoa price to a five-year low at USD2338/ton. This price drop reflects a correction after a larger-than-expected production while the threat of the Harmattan (a dry and dusty wind) – initially expected to disrupt 50 per cent global production – did not materialise. Delledonne writes that the current multi-year low in cocoa’s price is perceived as a buying signal by contrarian investors.

European corporate bonds ETFs saw USD4.3 million outflows. “We believe the ECB’s decision to reduce the amount of monthly bonds purchase by EUR20 billion after April coupled with the highly uncertain outcomes from the upcoming presidential elections have weighed on investor interest in European corporate bonds. The French far-right Presidential candidate, Le Pen, who is currently in second place according to recent polls, has promised the return of the French franc, threatening a redenomination of EUR1.7 billion of French debt into francs if she were elected with the potential to default.”

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