Overview: As the crisis in eastern Ukraine shows no sign of de-escalating, defensive assets such as gold and a number of haven currencies rose at the end of the week while the uncertainty weighed on equity markets. The US accused..
ETF Securities Research
Russia of “distraction, deception and destabilisation” in eastern Ukraine, in a strongly worded statement requesting Russia to help diffuse the crisis or face further sanctions. Continued political risk caused the prices of some of Russia/Ukraine key exports such as nickel and corn to rise. A busy week lies ahead, with the US Fed and Bank of Japan meetings concluding their respective policy meetings on Wednesday.
Commodities: Industrial metals and softs lead commodities higher. The threat of sanctions against Russia, which produces 13% of global supplies of nickel, led to its price gaining 2.4%. With the probability of an El Niño weather event rising, softs continued to see their prices rise. Although the El Niño is forecast to be weak-to-moderate (which has historically been good for coffee growing), coffee prices rose 5.2%, which is ripe for correction in due course in our view. Sugar gained 2.4% as drought is likely to reduce production from Asia. Platinum group metal prices fell as market participants expected the 13-week long stalemate between South African miners and its employees to come to an end. However, in a statement published late on Thursday, Amplats, Implats and Lonmin regrettably informed that no resolution was attained. PGM prices could see some recovery on the back of this disappointment.
Equities: Global equities fall on Ukraine concerns, while supportive economic data boosted European equities. Last week saw European leveraged equity indices rise 2.5% on average on less negative consumer confidence and better-than-expected PMI in the Eurozone. US equities remained relatively quiet following the Easter weekend an intensified focus on the Ukraine. Meanwhile the DAXglobal® Alternative Energy Index increased 1.4%, benefitting from better outlook in the renewable energy market as First Solar and Vestas Wind saw their share prices rise 4.4% and 4% respectively over the past week. Gold miners fared well, up 0.9% last week, as investors focused on cheap valuations and the stabilisation of the gold price.
Currencies: GBP volatility the lowest in 15 months could signal sharp move lower. GBP has shown resilience around the 1.68 level against the USD in recent weeks despite the inversion of interest rates differentials to favour the USD. With volatility approaching the lowest level in six years, we expect there to be limited room for further decline in volatility and as such could be approaching a critical breakout point for GBP. Volatility and GBP/USD direction are negatively correlated, so any economic surprises could see volatility move back toward longer term average levels, in turn prompting a sharp move lower in GBP/USD., Next week’s release of Q1 GDP for the UK will be closely monitored for signs of a fade in economic momentum and will therefore be critical to keeping the exchange rate above the 1.68 level. Moves higher from current levels have been limited and as such we feel the balance of risks for Sterling are skewed firmly to the downside.
Source: ETFWorld.it
