Weak Growth Data Hits Equities, but China A Shares Buck the Trend

Weak Growth Data Hits Equities, but China A Shares Buck the Trend ETFS Multi-Asset Weekly – Weak Growth Data Hits Equities, but China A Shares Buck the Trend

Highlights

• Cocoa jumps nearly 10% in 2 weeks as Ebola fears grow.
• China A-Shares buck the global equity trend and continue to rally.
• Growth fears and volatility weighs on commodity currencies, with further losses expected.

Global equity markets and cyclical metals ended the week lower as US and European PMIs, US durable goods orders and the German IFO index came in lower than expected. China A-shares bucked the trend, with a better-than-expected flash PMI reading adding support to the market. US payrolls will be the centre of attention this week as the market judges the capacity of the US economy to absorb an expected interest rate hike in H1 2015. A strong reading will likely to be US dollar positive, which will likely keep pressure on commodities. In the medium-term, however, we believe US economic strength will ultimately be positive for global growth and commodity demand and we view commodities as good value at current prices.

Commodities

Cocoa jumps nearly 10% in 2 weeks as Ebola fears grow. Following the previous week’s 5.4% gain, cocoa prices continue to soar. With over 70% of produced in Africa, there are fears that the spread of Ebola will hinder global supply. Côte Ivoire, which produces over 30% of global supply was been on track to produce a record high output this year. If the disease hits the country, global supply will tighten amid strong demand growth. US natural gas stocks increased by 97 billion cubic feet in the week ending September 19. This compares to an expected increase of about 100 billion cubic feet and sent prices 1.0% higher last week. Most industrial metal prices were hit by weaker-than-expected US PMIs and durable goods orders.

Equities

China A-Shares buck the global equity trend and continue to rally. Last week saw the MSCI China A index gaining 0.9% on better manufacturing PMI for September while the US and Eurozone manufacturing PMI disappointed again. The MSCI China A index has been trading above its 50 and 200 day moving averages since end of July, suggesting further potential rise in the near term. Meanwhile, lower-than-expected Michigan confidence added to the downward pressure in the US with the Russell 2000® Index dropping 4.2% over the past week. Concerns over the ECB’s capacity to restore growth in the Eurozone economy has weighed on European equity benchmarks, sending short European indices as well as the EURO STOXX 50® Investable Volatility Index upward again, by 5.7% on average for the short indices and 2.6% for the volatility index.

Currencies

Growth fears and volatility weighs on commodity currencies, with further losses expected. ‘Commodity currencies’ were the worst performing last week with the currencies of major commodity producers Australia, New Zealand, Canada and Norway coming under pressure. Volatility has risen across a number of asset classes, including the FX market, as investor uncertainty has risen on anticipation of US rate hikes in the new year. Meanwhile, a soft patch for commodity prices (also partly a reflection of concerns over global growth) has also weighed on commodity currencies. There may be some scope for a rebound in the Canadian dollar and Norwegian Krone if oil prices can rebound, but we expect that further downside is likely for the Australian and New Zealand Dollars. Concerns over China’s economic strength will likely weigh on the AUD, while NZD is likely to experience further weakness after the Reserve Bank of New Zealand revealed it had sold the largest amount of currency in seven years to deflate the currency

Important Information

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