Cyclical Assets In Focus

ETFS Multi-Asset Weekly A Turbulent Week for Investors Cyclical Assets In Focus

Highlights

Industrial metals staged a modest recovery after China posts upside surprise.
Global equities advance.
USD and CAD to outperform

Cyclical assets were back in focus last week, with industrial metals and global equities seeing modest gains. Better-than-expected Chinese Q3 GDP and industrial production data lifted investor sentiment and contributed to the advance. The FOMC meeting and US Q3 GDP growth data will likely be the focus for global markets this week, with industrial metals and US equities likely to benefit from improving growth in the country and the US Dollar likely to be buoyed by rising expectations for tighter Fed policy in 2015.

Commodities

Industrial metals staged a modest recovery after China posts upside surprise. Aluminium, palladium and lead all posted gains last week, rising by 4.1%, 4.0% and 2.9% respectively, as China’s Q3 GDP and industrial production surprised on the upside. Investors are starting to realise that the recent correction has been excessive and cyclical commodities like industrial metals are well positioned to benefit from robust activity in China and the US. Meanwhile, after rising over 70% since the beginning of the year, Arabica coffee prices slumped 11% last week on rainfall prospects in Brazil. Drought and irregular rain in Brazil, the world’s top producer, have hurt the prospect for 2015 crop. However, with rains resuming the flowering process has started for the 2015 crop, but analysts are divided in their opinion as to the extent the earlier disruptions will cause irrevocable damage to the crop.

Equities

Global equities advance. The FTSE MIB, the DAX, and the FTSE100 rallied strongly last week, after Chinese economic growth data boosted optimism over the global economic outlook. The rally however might be short-lived after 24 European banks failed the European Banking Authority (EBA) stress tests over the weekend. The Russell 2000 also gained last week, rising 2.8%, as US stock earnings beat expectations. With Q3 US GDP growth figures coming out on Thursday and likely confirming the steady pace of expansion of the US economy, US equities should continue to benefit. Meanwhile, continued weakness in the gold price weighed on the DAXglobal Gold Miners Index last week, erasing all the gains so far accumulated during the year. We anticipate this to be temporary and for gold miners to resume their growth as valuations remain well below historical levels.

Currencies

USD and CAD to outperform. Central Banks will again dominate currency landscape this week, with the US Federal Reserve, the Bank of Japan and the Reserve Bank of New Zealand all holding policy meetings. While most central banks have been trying to talk down their currencies in recent months, the US Fed and the Bank of Canada have been the exception. We expect this week’s FOMC meeting to be the catalyst for a stronger USD. The Fed will likely cease its bond buying this month, in line with previous guidance. Its forward guidance will be the main focus and any changes to the language will prompt a swift reaction for USD. We remain bullish on the outlook for the USD and feel that this week’s GDP release will again confirm that the recovery is on track in the US. The Canadian dollar (CAD) should be one of the best performers in coming months, with an improving domestic economy supporting rate differentials and a stabilisation in oil prices. CAD is significantly tied to oils’ fortunes, and this source of downward pressure will be gradually removed.

Important Information

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