ETF Securities Multi Asset Weekly: Watershed week for commodities spurs “risk-on” mode

Chinese stocks are leading the Asian rally today after speculation the government will increase stimulus.
Global stocks enjoyed their best week in 2015 which saw commodities finally stage a comeback after dovish…

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minutes by the Federal Reserve open market committee meeting (FOMC) extended the dollar’s decline. While central banks in Europe, UK and Japan remain cautious on the global economy, their accommodative stance raised hopes of further stimulus. The official benchmark for stock market volatilitythe VIX index fell below its long term average for the first time in 6 weeks.


Production cuts hint at first signs of a floor in commodities. Despite the unexpected rise in crude oil inventories by 2.3mn barrels, WTI crude and brent oil posted their strongest weekly gains 8.9% and 9.4% respectively. A trifecta of reasons – geopolitical risk premium, a lower US dollar and caution of a spike in oil prices by Shell, explain this week’s oil rally. Zinc spurred the base metals complex, reaching a four-week high of $1824.5 per ton, after Glencore announced plans to cut zinc production by a third due to persistent lower prices. Platinum staged a comeback rising 3.5%, from a lower supply outlook after Zimbabwe asked miners to cut power usage by 25% amid a water shortage. Coffee continued its upward trend supported by stocks falling to their lowest level since August 2012 reported by the Intercontinental Exchange and the impending Brazilian coffee harvest.


Dovish FOMC minutes add $2.5 trillion to equities sending stocks higher. Global equity markets posted their strongest week in 2015 as the minutes of the FOMC meeting pointed to a delay in the 2015 rate hike. However, we believe the October and November payrolls will seal the decision. After remaining closed for the Golden week, Chinese equities resumed trading on Thursday and ended the week higher by 4.2%.

Investors shrugged off the unexpected decline -1.2% in industrial production and -1.8% in factory orders from Germany (devoid of the Volkswagen impact) on hopes of further stimulus by the European central bank (ECB). Meanwhile industrial production in France was up 1.6% marking it first gain since January. Oil dependent sovereign  wealth funds (SWFs) are emerging as the latest victim to sliding oil prices, and some oil exporting countries could divert money from their SWFs to bolster their fiscal positions.


Greenback heads for biggest weekly slide after 2015 rate hike fades away. The US dollar extended its decline after the 2015 rate hike expectations were  delayed further following the minutes of the FOMC meeting. The accommodative monetary policy stance echoed at the ECB meeting coupled with weak industrial production data saw the euro trade higher. The weakest reading in construction output since 2002 and an expanding trade deficit in August postponed the case for a rate hike by the Bank of England, putting sterling on a weaker footing. The RBA left rates on hold at 2.00% for the 6th month in a row and the Aussie strengthened on the back of rising commodities.

The Bank of Japan failed to provide any further stimulus and the Yen remained weaker as risk appetite resumed spurred by rising commodities. Despite a rise in unemployment in September, the Loonie gained support from the oil price rally.


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