Gold ETPs saw large outflows on increased expectations of monetary policy normalisation …..
Positive surprise from Chinese manufacturing activity supported demand for industrial metals ETPs
Temporary factors boosted crude oil prices and inflows into oil ETPs
Largest weekly outflows from Gold ETPs since December last year. We saw US$160mn of outflows from gold ETPs last week after hawkish comments from the ECB and BOE and higher-than-expected German inflation. The increased expectations of monetary policy normalisation resulted in a sovereign bond sell-off and rising risk appetite. US 10-year Treasury yields rose by 12bps while European 10-year sovereign bond yields rose by an average of 21bps, to their highest level since December 2015. In January 2017, we published our forecast for the gold price at US$1230/oz by year-end. We remain largely on track with that trajectory, with gold falling below US$1250/oz last week. With the gradual rise of global real yields, we believe that gold prices will continue to trend down to US$1230/oz. Although the downside risk for gold prices will be contained by the gradual nature of rate increases, and on-going tail risks. While the US dollar has been soft recently relative to other currencies, a rising rate environment will be US dollar positive and gold price negative in the second half of the year.
Industrial metals ETFs saw large inflows this week with US$55mn. The publication of the Chinese official Purchasing Managers’ Index numbers for the manufacturing sector last Friday surprised to the upside, rising from 51.2 in May to 51.7 in June. The sub-components of the index suggest that the manufacturing sector was supported by rising demand from abroad as export orders strongly increased, while there are indications of growing domestic demand. Despite improving industrial sentiment, metal price gains were capped at 2.3%, because weak Asian stock markets acted as a counterweight.
Crude oil ETPs attracted almost US$24mn of inflows last week. Oil prices gained 6% last week, with Brent and WTI reaching US$47.5 and US$44.9 per barrel respectively as of last Friday, despite the surprise build in US crude oil inventories. The US Energy Information Administration reported a 118k barrels increase in US inventory from the previous week. The price gains were likely resulting from the decline in US crude oil production by 100,000 barrels per day on the week of the 19th of June. However, this is potentially a one-off price shock as it partly reflects the temporary interruption of the production in the Gulf of Mexico during the tropical storm Cindy two weeks ago.
Equity ETFs saw the highest inflows this week with US$29mn. Gold miner ETFs saw significant inflows for three consecutive weeks, totalling US$81mn. Investors generally see gold miners as distinct from gold allocation. Other thematic ETPs such as robotics and cyber security remain popular with US$4mn and US$18.5mn of inflows last week respectively.