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Weekly ETF Monitor for week ending 21 July 2017

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Jul 21, 2017

The S&P/ASX 200 declined by 0.7% as more hawkish statements from RBA saw the market dip on Tuesday. The S&P 500 gained 0.5%, also led by shifting rate expectations. The EURO STOXX 50 lost 2.1% for the week. BetaShares Global Gold Miners ETF (MNRS) was the top performing equity fund for the week as the market continued to turn positive for precious metals. The Australian dollar gained another 1.1% against the US dollar last week. The euro gained 1.7% and the yen also gained 1.2% as the US dollar fell on lower interest rate expectations and potential delays to Trump's policy agenda. Commodities posted a strong week with gold up 1.5% and silver jumping 4.6%. ETFS Physical Silver (ETPMAG) was the top performing fund for the week. Iron ore also rallied on higher than expected Chinese growth. The Australian ETF market saw inflows of A$196m and outflows of A$141m from domestically domiciled ETFs last week. The largest flows for the week were in the cash sector with inflows into BILL and QPON and outflows from AAA.

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Weekly ETF Monitor for week ending 14 July 2017

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Jul 14, 2017

Global equities rallied last week following Janet Yellen's comments suggesting that the pace of rate normalisation will be more gradual than some had anticipated. The S&P/ASX 200 added 1.1%, the S&P 500 rose 1.4%, the EURO STOXX 50 gained 1.8%, while the MSCI Emerging Markets Index jumped 4.5%. iShares MSCI BRIC ETF (IBK) was the top performing unleveraged equity ETF for the week, returning 2.3% in Australian dollar terms. The Australian dollar gained over 3% on general US dollar weakness and higher commodity prices. The euro gained 0.6% and the pound added 1.6% against the US dollar. The Japanese yen also strengthened by 1.2%. Global bonds yields climbed after a better-than-expected US jobs report offered support to the Federal Reserve's plan to raise interest rates, US 10 year Treasury yields up 0.08%. Australian 10 year government bond yields up 0.13%. Commodities rebounded with WTI crude oil up 5.2% and iron ore up 4.7%. Lower rate expectations also provided positive news for precious metals with gold rising by 1.2% for the week, its best weekly performance in two months. The Australian ETF market saw inflows of A$84m and outflows of A$67m from domestically domiciled ETFs last week.

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European monetary policy in the spotlight

Jul 06, 2017

European monetary policy in the spotlight ETFS EURO STOXX 50® ETF (ESTX) Key Takeaway: Despite Draghi’s hawkish statements, Europe’s economic indicators still point to a strong continuing recovery with levels over and above Australia, the US and the UK. In this week’s ETF Securities trade idea we look at key economic indicators released in June across the eurozone as well as looking ahead to the potential end of monetary stimulus, as hinted by the European Central Bank last week, and what that means. Manufacturing in the Eurozone - In June manufacturing in the eurozone continued to expand at pace, with Markit’s eurozone manufacturing PMI indicator of factory activity moving to its highest level since April 2011, pointing to a significant increase in GDP growth in Q2. Germany led the way, but even Greece showed signs of expansion during the month. Composite PMI, combining manufacturing and services, dipped, but remained strong, as shown in Figure 1. Eurozone GDP Growth for Q1 2017 was at 0.6% for the quarter, well above the levels seen in the UK at 0.2%, the US at 0.45% and Australia at 0.3%. In an annual basis, as shown in Figure 2, the eurozone had gained significant ground in recent years. Unemployment held firm at 9.3% in May. While the headline rate is still historically high, it has decreased by a full percentage point in just 15 months and is down from a peak of 12.1% less than four years ago, as shown in Figure 3. Inflation figures released at the end of last week disappointed and clouded the picture somewhat. Headline CPI fell back to 1.3% in June, having peaked at 2.0% in February, as shown in Figure 4. Core CPI, which exclude the volatile energy segment, rose to 1.1% providing some evidence for those looking to frame a reflationary argument. The end of monetary stimulus in the eurozone? Hawkish comments from ECB president, Mario Draghi, last week hinted at the end of monetary stimulus in the eurozone. Although the implications were later watered-down, the market’s reaction to the possibility of near-term tapering was reminiscent of the 2013 US taper tantrum; the euro leapt to a 16 month high, German 10 year Bund yields rose to an 18 month high and the EURO STOXX 50 dropped 2.9% for the week. Sustainability The episode has raised questions as to whether the region’s recovery is sustainable or a result of the extraordinary stimulus measures implemented over the past two years. Cautious statements that followed suggest that stimulus will remain in place for some time, which should be positive for equity markets. Alternatively, as shown in Figure 1, a rising-rate environment has also historically coincided with strong equity market performance over the longer-term. What does this mean for investors? Investors wishing to take a view and add Europe to their portfolio may consider using ETFS EURO STOXX 50® ETF (ESTX), the only ETF in Australia tracking Europe’s leading blue-chip index. ESTX offers unhedged exposure to the eurozone with a management fee of 0.35% per annum.

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Weekly ETF Monitor for week ending 30 June 2017

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Jun 30, 2017

Global equities declined last week as monetary policy expectations were re-aligned following hawkish comments from central bankers across the globe. The S&P/ASX 200 declined by 1.7% on Friday to end the week up 0.1%, following an earlier rally in commodities. The S&P 500 declined 0.6%, while the EURO STOXX 50 dropped 2.9% as European inflation disappointed. Resource sector ETFs (QRE and OZR) were the top performing equity funds for the week, while gold miners (MNRS and GDX) were amongst the poorest performers. The Australian dollar ended the week close to 3 month highs, nearing US 77c on general US dollar weakness. The euro gained 2.1% against the US dollar as the ECB hinted at tighter monetary policy. Global bonds sold off, with US 10 year Treasury yields up 0.16% and Australian 10 year government bond yields up 0.23%. WTI crude rebounded 7%, while iron ore gained 14.5%, sending resource stocks higher. The Australian ETF market saw inflows of A$116m and outflows of A$58m from domestically domiciled ETFs.

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Weekly ETF Monitor for week ending 23 June 2017

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Jun 23, 2017

The S&P/ASX 200 declined by 1% last week as financial stocks continued to suffer from bank-levy related selling. The S&P 500  gained 0.2% as a rebound in technology stocks from the previous week's dip offset falls in the energy sector. The Nikkei 225 gained 1%, while the EURO STOXX 50 ended the week flat. ETFS Morningstar Global Technology ETF (TECH) was the top performing ETF for the week, while VanEck Vectors ChinaAMC A-Share ETF (CETF) benefited from the decision to include China A-shares in the MSCI Emerging Markets Index. The Australian dollar ended the week 0.7% lower, suffering its worst week in two months on the back of lower commodity prices. WTI crude declined 3.9% to US$43/bbl and officially entered a bear market. Precious metals dipped early in the week before finishing the week strongly. The broad Bloomberg Commodity Index declined 2% for the week. The Australian ETF market saw inflows of A$226m and outflows of A$31m from domestically domiciled ETFs. The largest inflows were into broad-based domestic equity funds (STW, QOZ and IOZ) and BetaShares Australian High Interest Cash ETF (AAA). The bulk of outflows were from iShares S&P 500 AUD Hedged (IHVV).

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Palladium on the move?

Jun 22, 2017

Palladium on the move? ETFS Physical Palladium (ETPMPD) In this week’s ETF Securities trade idea we examine the drivers behind palladium’s recent price run (up 30% YTD) and look at whether it has further to go. We identify four key points to consider: Palladium’s major use is in autocatalysts used in emission reduction equipment in gasoline cars and its main suppliers are South Africa and Russia Demand for gasoline vehicles is on the rise in key markets such as China and India and diesel demand is declining globally Electric vehicle demand is yet to reach sufficient scale to impact palladium prices significantly Speculative positioning in palladium is high, but not excessive Palladium is a metal used mainly in pollution abatement equipment. Approximately 80% of palladium is used in autocatalysts to reduce the emission of carbon dioxide and nitrogen oxides. There are higher loadings of palladium in gasoline cars than there are in diesel cars. Diesel cars have higher loadings of platinum (which performs a similar role to palladium, but its more suited to diesel engines which operate at lower temperatures). About 40% of platinum demand comes from autocatalysts. About 40% of mine supply of palladium comes from South Africa and another 40% comes from Russia. Historically, the Russian government had been selling its stockpiles of the metal, but there has not been any metal from this source since 2013. There is no transparent data on whether the Russian government has more stocks to sell. Palladium has appreciated by 30.0% in US dollar terms in 2017-to-date and, as shown in Figure 1, is approaching parity with platinum for the first time since 2002. Consumer preferences have tilted towards gasoline vehicles away from diesel, which accounts for much of the rise in demand for palladium relative to platinum. The automobile growth in markets like China, India and other emerging markets is a key area of strength. These are generally gasoline markets. These countries are also tightening emission standards which will increase the loading requirements of palladium. Established diesel markets like Europe are not seeing automobile growth on the same scale and regulatory fall-out from the emissions scandal and technological advancements have further tilted demand away from diesel. Electric vehicles (EVs) are growing rapidly from a small base. While electric vehicles account for less than 1% of global sales today, consensus estimates that it will rise to 4% by 2025. Most EVs do not contain palladium and so the growth of this type of vehicle will reduce a source of demand. We don’t think that the growth of EVs will materially change the supply-demand balance for palladium in the next couple of years, but will do as the market continues to grow. Speculative positioning in the futures market is elevated, as shown in Figure 2. Net longs are above their 5 year historic average but are still well below 2013-2014 levels when concerns about mine supply were aggravated by strikes in South Africa. Supply is subject to abrupt changes. Mine closures due to strike activity, embargoes of exports from certain countries and recycling dependency on other metals are some of the examples of factors that cause supply disruptions. While changes in demand can be quite surprising, as we have seen with the rotation toward palladium (gasoline engines) from platinum (diesel engines) in light of the emission scandal, generally changes in demand are more gradual. Investors wishing to add palladium exposure to their portfolios may consider using ETFS Physical Palladium (ASX Code: ETPMPD), the only ETP in Australia providing investors with physical exposure to the metal. ETPMPD offers holders a direct entitlement to palladium vaulted at HSBC in Switzerland with a management fee of 0.49% per annum.

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