All eyes remain on the Fed, as the question of whether or not the Fed will start reeling back its quantitative easing program in the coming months remains the key driver of global markets. Last week investors continued to lean towards a “sooner rather than later” QE cut-back, driving down the prices of many commodities.
Oil has been an exception as an expected step-up of US intervention in Syria following the alleged use of chemical weapons by Syrian government forces has increased regional supply risks.
This week’s Fed meeting on Tuesday and Wednesday will hold particular significance as it will include revised economic forecasts and a follow-up press conference. Recent US consumer, employment and real estate market data has been relatively positive, but continued low inflation provides room for the Fed to take a wait and see stance. Commodity ETP investors appear to be betting on continued cyclical strength and an early reduction in QE, with inflows continuing into more cyclically-sensitive commodities such as palladium, silver and copper and gold continuing to see outflows.
Palladium ETPs see first inflows in a month on South Africa power and labor concerns. While platinum ETPs have seen US$85mn of inflows over the past month, flows into palladium were negative until last week when ETFS Palladium Trust (PALL) saw US$7.4mn of inflows. Both platinum and palladium are affected by supply concerns stemming from labor disputes in South Africa and unstable energy supply. However, autocatalyst demand for palladium is likely to be healthier than platinum given strong sales of gasoline engine cars in the US and China compared to lackluster sales of diesel cars in Europe.
Copper ETPs see inflows on deteriorating copper supply outlook and greater confidence in demand recovery. ETFS Copper (COPA) received US$12.4mn of inflows as the combination of a wall collapse at the world’s second largest copper mine (Grasberg in Indonesia) and a wall slide at a key mine in the US (Bingham Canyon) continues to hit supply. Supply expectations were further disappointed by Rio Tinto’s delay of its first shipments from its new Oyu Tolgoi mine in Mongolia.