G20 Focus on Global Growth as Cyclical Assets Continue to Disappoint

ETFS Multi-Asset Weekly A Turbulent Week for Investors G20 Focus on Global Growth as Cyclical Assets Continue to Disappoint

Highlights

• Grains rally on cut in production forecasts.
• Stocks diverge on recovery prospects.
• No battle for US Dollar in global currency wars.

Developed market growth remains weak and patchy, with the exception of the US economy. The G20 wrapped up last weekend with government commitments to boosting growth and solidifying the employment landscape. With growth in many regions looking moribund, government initiative is crucial for a sustainable recovery. World leaders are looking to lift growth by 2.1% by 2018, and infrastructure development is a key pillar of the initiative. In the near-term, markets are trading largely on their own fundamentals prompting price divergences. Industrial metals were weighed down by weak industrial production data in China, while grains gained on US production cuts. European equities underperformed as investors feared the worst for the Euro area GDP release on Friday, while US small caps rallied on good earnings data.

Commodities

Grains rally on cut in production forecasts. The USDA WASDE report proved to be bullish for wheat and corn, which rallied 5.4% and 3.9% respectively as US production estimates were cut. Global supplies estimates were also cut mainly on the back of dry weather in Australia.

The implications for higher feed costs also raised the price of hogs and livestock. Henry Hub natural gas prices fell 8.9%, giving back part of the 15% gains of the previous week as weather conditions improved in the US. Brent oil fell a further 7.2%, hitting a four-year low, as the market casts doubts on whether the OPEC cartel will commit to production cuts when it meets at the end of this month. The capitulation in crude oil has dragged gasoline, petroleum and other distillates lower. All precious metals posted gains this week, for the first time in five weeks. Gold, silver, platinum and palladium were up 1.5%, 3.0%, 0.7% and 2.1% respectively bouncing after excessive declines in previous weeks,

Equities

Stocks diverge on recovery prospects. European stocks continued to decline last week, led downwards by Italian bourses. The FTSE MIB and the DAX 30 fell -2.6% and -1.4% respectively as negative investor sentiment towards Eurozone growth prospects dominated stock performance ahead of Q3 GDP growth figures on Friday. Any sign of weakness will reinforce the ECB president Mario Draghi’s current mandate of monetary stimulus and plans to expand the ECB’s balance sheet to 2012 levels. In contrast, strong corporate earnings prompted US and UK stocks higher with benchmarks touching record levels and the Russell 2000® up 1.3%. UK stocks could receive support from a weak inflation reading this week, as fears of a premature rate hike could be eased. Last week’s dovish Bank of England Inflation Report reinforced the view that the central bank will remain responsive to the data.

Currencies

No battle for US Dollar in global currency wars. Despite the positive rhetoric from the G20, in the near-term growth we expect more of the same – the US recovery to outpace the rest of the developed world and for the US Dollar to consolidate recent gains as we saw last week. We expect a more dovish tone from major central bank’s (the exception will be the US Fed) this week, and after the Bank of England’s Quarterly Inflation Report reported weaker growth and inflation forecasts, there could be a change in the voting at its last meeting as the two policymakers voting for a rate hike may have been calmed by the fading economic momentum of the UK economy. Meanwhile, the Japanese Yen will remain under pressure after news that the economy sank into recession in Q3, keeping the BOJ stimulus program in focus.

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