– Strong inflows into precious metals ETPs (US$99mn) after no change in the Fed’s dot-plot…….
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– Inflows into crude oil intensified last week as US stocks drop.
– Investors took profits on EUR gains after the Dutch elections results.
No change in the Fed’s dot-plot boost precious metals. US$84.5mn of inflows into gold ETPs last week reversed the prior two weeks of outflows (US$71mn). As expected, the Fed raised interest rates by 25bps. However, the Fed left its so called dot-plot (its own estimate of where interest rates will end up) unchanged with three rate hikes this year, followed by another three in 2018. Its forecasts for growth and inflation were broadly unchanged. The more dovish-than-expected outlook lead the US dollar and yields on 10-yr US Treasuries to fall significantly, supporting gold price. Gold prices rose 1.7% following the Fed’s announcement. We expect the gold price to increase by 5 to 6% by mid-year, but decline toward current levels by year end.
Inflows into crude oil intensified last week as US stocks drop. We saw a second consecutive week of inflows into crude oil ETPs of US$60.5mn (after US$10mn the week before). Oil prices are recovering after US crude oil inventory were slightly reduced last week, for the first time since early January. Meanwhile, Saudi Arabia has announced willingness to extend production curbs in the second half of the year if global stocks remain above the five-year average.
Investors took profits on long EUR ETPs. We saw a reduction on long positions on EUR ETPs (US$26mn) and an increase in short EUR ETPs (US$23mn) after the euro appreciated 1.6% since the latest ECB meeting on March 9th on the back of expectations that the ECB will adopt a less accommodative policy stance. Meanwhile, the defeat of the far-right Eurosceptic candidate Geert Wilders in the Dutch elections also removed downward pressures on the Euro. We expect the Euro to appreciate by roughly 3% toward mid-year.
Positive economic surprise from China and a weaker US dollar support metal prices. We saw US$51mn of inflows into industrial metals ETPs including US$29mn inflows into copper ETPs after positive economic surprises from China. Both Chinese industrial production and fixed asset investments for February beat expectations, rising 6.3%yoy and 8.9%yoy from 6.0%yoy and 8.3%yoy in January respectively.
This week. March Flash PMIs for the Eurozone, US and Japan will provide investors a gauge for economic activity in the final month of the first quarter. Speeches by Fed Chair, Yellen and dissenting committee voter, Kashkari will be followed for hints of further dovishness.