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Weak Chinese PMI trigger global panic and market sell off
Commodity ETP Weekly – Weak Chinese PMI trigger global panic and market sell off
Highlights
Lower oil prices drive further inflows into oil ETPs.
Global stock market sell-off benefitted gold.
2016 a turning point for commodities?
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- Weak Chinese PMI trigger a market sell off early last week affecting stocks and commodities with oil falling to an 11-year low while gold rose more than 4%.
- Oil ETPs saw inflows last week, adding to last year’s strong inflows. Oil ETPs attracted the largest inflows across commodity complex last year after oil prices dropped 33% in 2015 and drove bargain-hunting.
- Gold and broad commodity ETPs also recorded inflows as investors rebalanced their exposure out of equities and into safe haven assets such as gold.
Lower oil prices drive further inflows into oil ETPs. Oil prices fell to an 11-year low after Chinese Caixin Manufacturing and Service PMIs released last Monday renewed pessimism about China’s growth prospects and demand for natural resources this year. Last week, Brent fell to US$33.75/bbl (-9.5%) and WTI fell to US$33.27/bbl (-10.2%). Tensions between Saudi Arabia and Iran underpinned oil prices very briefly on Monday but was soon overcome by the rout in global equity markets. The decline in US oil inventories last week seemed to have gone completely unnoticed, with the market focused on the broader cyclical sell-off. Despite last week’s inventory decline, US oil stocks remain significantly above its historical average and the global supply glut in oil continues to weigh on prices. However, the prospect of a price recovery in the medium term remains the general consensus. Oil ETPs recorded inflows of US$43mn last week after a year of strong inflows of US$1.46bn, the largest across ETF Securities commodity ETPs.
Global stock market sell-off benefitted gold. Gold maintained its safe-haven status in the opening week of 2016. Chinese stock exchanges were forced to halt trading several times over the past week, triggering a more general panic across global asset markets. The panic led to gold prices rising 4.4% and gold ETPs witnessed net inflows of US$11.1mn, the largest inflows since mid-November. Last year gold ETPs recorded outflows of US$1.26bn, the largest across the commodity complex, as a strong US dollar and rate rises weighed on the price of the metal. By Friday, gold prices eventually pared back some of its gains on the hopes that the suspension of China’s circuit breaker rules would calm the market. Strong US non-farm payroll released on Friday may also add further downward pressure to the yellow metal this week.
2016 a turning point for commodities? While commodities will remain affected by the excessively negative sentiment around China, we believe USD strength will wane this year, removing one of the weights on commodity prices with gold the main beneficiary. Oil should progressively recover as weak prices become economically unsustainable for the OPEC countries. Mining capex and production cuts should bite into supply, providing an upward pressure to some metal prices. Last week saw inflows of US$18.9mn into broad commodity ETPs, marking the third consecutive week of inflows into broad baskets. Broad commodity baskets saw a total of US$232.2mn inflows in 2015.
Key events to watch this week. The Bank of England (BoE) meeting on Thursday will reveal whether the BoE will follow the Fed and increase interest rates. Historically the BoE has increased rates 6 months on average after the Fed. Commodity prices are likely to remain volatile, especially after the release of Wednesdays’ Chinese trade data.
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T +44 (0) 207 448 4336
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Last year was a memorable one for crypto investors. The Nasdaq Crypto Index™ (NCI™) returned over 104% in 2024 as the tide shifted dramatically for this asset class in the US.
The year ended with a cooling of November’s post-election fervor, with the NCI™ down 5.3% in December. But we are already seeing signs this may be short lived, with bitcoin once again crossing the $100,000 mark in the early days of the new year.
In his latest Notes from the CIO, Samir Kerbage shared his thoughts on why it’s not just bitcoin investors should be watching, covering which other assets might outperform this year. On Wednesday, our Research Team will host a webinar to discuss our 2025 Outlook and what investors can expect in the coming weeks and months.
As always, we are greatly appreciative of your trust in us and are here to answer any questions you may have.
-Your Partners at Hashdex
Market Review
The last month of the year saw a correction in crypto asset prices, following the spectacular performance in November following the US elections. In the first half of December, the optimism observed in the previous month still prevailed. On the 17th, the Nasdaq Crypto Index™ (NCI™) was up almost 10% for the month. However, the FOMC’s announcement indicating the possibility of fewer interest rate cuts in the future triggered a trend reversal, affecting both the price of crypto assets and traditional risk assets. By the 19th, the NCI™ had turned negative and oscillated with a slight bearish bias until the end of the month, closing December down 5.3%.
The best performance within the index came from XRP, which rose just over 10%. Among the worst performers, Solana, Cardano, and Avalanche registered losses around 20%. The two main assets, Bitcoin and Ethereum, fell 3.7% and 10.0%, respectively.
Among the sector indices from CF Benchmarks, the highlight was Decentralized Finance (DeFi), which rose almost 6%, driven by the lending platform AAVE, which reached its highest value in collateralized assets and increased by almost 50% during the month. On the other hand, the Smart Contract Platforms and Digital Culture indices saw losses around 14%, with key assets giving back some of November’s gains. The Vinter Hashdex Risk Parity Momentum Index dropped almost 4%, despite its largest-weighted asset, XRP, performing well.
Overall, 2024 was an excellent year for the crypto market. This is evident from the NCI™, which more than doubled in value during the period. Cyclical, regulatory, and technological factors lead us to believe 2025 could be an even better year. In 2024, Bitcoin stood out significantly, but the year end already hinted at how other theses, involving assets with smaller market capitalizations, could gain traction. We recommend reading our 2025 Crypto Investment Outlook for more details. We remain highly optimistic about the prospects for the crypto market this year and beyond.
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