ETP Note: Backlash against Putin impacts palladium, as disappointing Chinese PMI figures punish copper prices

The political backlash against Russia by the West surrounding the separation of Crimea from Ukraine leaves palladium exposed, according to an upcoming report from Viktor Nossek, Head of Research at Boost ETP the independent provider of short and leveraged ETFs….

Boost ETP

“As the largest exporter of palladium, Russia may face further sanctions, potentially hampering the trade of palladium,” explained Mr Nossek. “Worries that this reinforces supply shortages of palladium bolster bullish positioning in the metal. In contrast, copper’s weakness is underpinned by China disappointing March PMI numbers for manufacturing, pointing towards deepening output contraction and weak industrial profits.”

·         Supply shortages of palladium have resulted from depleted Russian state stock levels and falling Russian exports, which are reinforced by sanctions against Russia surrounding events in Crimea.
·         Destocking of copper has only just started in Shanghai warehouses, with inventory levels hovering close to peak levels attained in 2012, 2013 and so far this year. Deeper contractions in China producing output for March may add fuel to copper weakening.
·         Speculators have positioned along the contrasting supply conditions between copper and palladium. The continuing  bullish positioning in palladium vs. the recent increase in bearish positioning in copper is expected to drive the performance wedge between the metals wider.




Although gold often gains during extreme events, the start of the first US Federal shutdown in seventeen years last week failed to lift the gold price. Investors appear to be looking through the storm and are focused on assets that will either benefit from the continuation of the global growth recovery or are generally uncorrelated with debt risk.  Cotton and sugar gained 2.3% and 1.8% last week, bouncing from lows hit in September, but without strong news driving the trend. Platinum and palladium fell 3.6% and 2.5% respectively. That comes despite a 17% rise in Japanese auto sales (to a 14-month high) and a 12.1% rise in UK car sales (to a five-year high). US car sales also remained brisk, despite the timing of Labor Day distorting the monthly statistics. Autocatalyts are the primary source of demand for the platinum group metals (PGMs). The strike that started two weeks ago was still on-going last week at Amplats, constraining the supply of PGMs.

    MA Weekly 07.10.13 1


US equities remain under pressure as the negotiations over raising the US debt ceiling continue. The S&P 500 fell for the second consecutive week as Republicans and Democrats continued to fight over the budget and debt ceiling. European equities have also been sensitive to the political turmoil in the US. The Euro Stoxx 50® Investable Volatility Index, which provides exposure to the forward implied volatility of the Euro Stoxx 50® Index, surged 5% last week, followed by the FTSE® MIB Super Short Strategy Index and the ShortDAX® x2 Index, up 3.5% and 1.4% respectively. Global equities are likely to remain volatile and under pressure as we get closer to the estimated 17 October hard deadline for lifting the debt ceilding.

MA Weekly 07.10.13 2


Safe haven currencies benefit as US fiscal negotiations drag on. The Japanese Yen (JPY) was the best performing G10 currency last week as investors sold risky assets and paid back JPY loans on growing concern about the lack of progress on US fiscal and debt negotiations.  For similar reasons the Swiss Franc (CHF) and even the Euro (EUR) also rallied against the US dollar last week. The British Pound (GBP) held up, continuing the trend of the past three months. However, towards the end of the week the currency showed some weakness, indicating the rally may be peaking. In our view, the GBP is one of the more overvalued G10 currencies and – despite recent rhetoric – has one of the more dovish central banks. We therefore believe the currency is particularly vulnerable to a sharp drop once growth data stop surprising to the upside.