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ETF Securities writes that investors placed contrarian trades last week


ETF Securities reports that last week saw USD6.7 million inflows into short USD long EUR ETPs as investors placed contrarian trades.

The firm writes that in a week where US 10-year Treasury yield temporarily rose above 3 per cent for the first time since 2014, which unleashed pent-up US Dollar strength, ETP investors appeared to take on a contrarian trade.
“The US Dollar basket rose 1.4 per cent with particular strength against the Euro (1.6 per cent). The Euro depreciated the most on Thursday following acknowledgment from the European Central Bank (ECB) that economic data has been weak in the recent past and that economic developments will need to be closely watched during Q2. While Mario Draghi, the ECB’s President, offered balance in comments highlighting that weakness could be due to temporary factors and come in the shadow of a strong spurt of growth at the end of 2017, the overall tone was judged by the market to be dovish. ETP investors however, appear positioned the Euro to reverse the depreciation seen last week.”
Meanwhile gold outflows resumed after two weeks of inflows. ETF Securities writes that rising Treasury yields and an appreciating US Dollar drove gold prices 1.1 per cent lower and led to USD23.1 outflows from gold ETPs. “That brings a break to several weeks of inflows, when gold had seen support from rising geopolitical risk. A historic summit between North Korea and South Korea last week led to an accord to completely “cease all hostile acts against each other” and work on denuclearising the Korean peninsular. That has taken some of the geopolitical premium off gold.”
Turning to sugar, falling sugar prices drew out potential bargain-hunters. “Last week’s inflows of USD8.9 million into long sugar ETPs were the largest since January 2015. Sugar prices have tumbled 23 per cent since the beginning of the year with global sugar markets amply supplied. With the EU having lifted its export quotas on sugar last year and plenty of supply coming from the major raw cane sugar producers like Brazil and India, sugar has come under pressure.
“However, as we switch over to the 2018/19 season, some speculate that more cane will be diverted to ethanol production in Brazil, amid higher oil prices (ethanol is alternative fuel in Brazil, with most cars able to consume either gasoline or ethanol). That could leave less cane available for sugar and potentially higher prices,” ETF Securities writes.
Outflows from platinum and palladium ETPs followed weak car sales last week. Platinum ETPs had outflows of USD7.1 million while palladium ETPs had outflows of USD10.6 million. The firm writes that both metals are used in autocatalysts and so are sensitive to auto sales. European passenger car sales declined 5.3 per cent y-o-y in March 2018 (marking the first fall in March since 2014) and commercial vehicles fell 2.5 per cent y-o-y in March 2018.

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