ETF Securities Weekly Flows Analysis Industrial metals inflows rebound despite US-China trade dispute

Industrial metals inflows rebound to their highest level in 15 weeks despite the ongoing sabre-rattling…….

Gold ETPs faced outflows for the second week in a row ahead of the Federal Reserve meeting.

Investors reduced positions in ETPs tracking long EUR/short USD pair as Brexit risks are brewing.

Industrial metals ETP inflows rebound to their highest level in 15 weeks.

Investors appear to be taking the escalation of the US-China trade conflict in their stride as we saw industrial metal ETPs garner the highest inflows in 15 weeks, worth US$45mn. The Bloomberg Industrial Metals Sub-Index rose 5.8% last week, indicating that investors may be coming to terms with the fact that the bilateral trade negotiations between the world’s largest developed economy (US) and the world’s largest emerging economy (China) is likely to be a long drawn out process.

While very little progress has been made so far, investors are taking solace from the fact that the US is still willing to negotiate terms. Last week, President Trump declared that US$200bn worth of Chinese goods would immediately be subject to a 10% tariffs, rising to 25% by the end of the year. Investors were appeased from the low level of initial tariffs, which was also viewed as a base for further negotiation on behalf of the US Administration. In turn, Chinese officials have announced a series of measures to open China’s markets to foreign goods. Additionally, Chinese officials indicated that they would not allow the Yuan to devalue further.

After the implementation of the latest round of tariffs, only about 12% of US imports will be subject to higher tariffs and the average tariff increase across all imports will only be around 1.6%. We expect this to have a very marginal impact on overall GDP levels for both economies. China is also using policy stimulus to offset any economic impact of the tariffs.

Inflows into nickel ETPs garner momentum rising to their highest level at US$18mn in 6 weeks. The advent of electric vehicles and the associated clean air battery technology appears to be lending buoyancy for nickel’s demand. Though batteries represented only 3% of overall demand for nickel in 2017 according to International Nickel Study Group (INSG), this is set to rise as manufacturers shift towards higher nickel content in batteries owing to its favourable properties. The sharp rise in new car registrations in the European Union (EU) in July (up 10.5%) and August (up 31.2%) also lent a tailwind to nickel prices.

Gold ETP outflows continued for the second week in a row ahead of the US Federal Reserve meeting. Investors withdrew US$26.3mn from gold ETPs as the US interest rate decision takes centre stage this week.

Investors reduced exposure to ETPs tracking long EUR/short USD positions by US$24.4mn as Brexit risks are brewing. The odds of a hard Brexit rose last week as UK Prime Minister Theresa May and EU leaders ended the Salzburg summit with little progress. The EU wants a customs border in the Irish Sea between Northern Ireland and the rest of the UK, a demand previously rejected by May.

Source: ETFWorld

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