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Commodities Briefing 20.Aug 2015

Posted on 20 August 2015 by VRS |  Email |Print

With this year’s market momentum largely being driven by growth sectors such as health care and technology, smart investors are looking for ways to diversify away some of the risks associated with those high flying areas should the market pull back. Prices of agricultural commodities have been sliding thus far in 2015 due to a variety of factors, among them the strong dollar, weak demand in China, and most importantly, excess supplies due to major innovations in crop yields.
However, history suggests that commodity prices do not go down forever, so playing a rebound in these prices seems like a good way to add a non-correlated asset to one’s portfolio. Positions with low or even negative statistical correlation, like commodities, can act as a hedge for a portfolio and help smooth out the recent volatility that we have seen in the stock market………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Another great game is certainly afoot in global financial markets, and China has announced its presence with authority. The bout, of course, is the currency war. On August 11, China devalued its currency by the largest amount in one day since 1993. By doing so, it joined a phalanx of countries around the world that have actively depreciated their currencies against the U.S. dollar.
Markets have been roiling ever since. This is especially true for commodities, which are already in a weakened position. But all the drama seems to be a bit of an overreaction………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

The rout in commodities isn’t only taking a toll on shares of mining companies, it is also driving dividends issued by miners sharply lower. Aggregate dividends from large precious metals miners are set to drop to $1.8 billion this year, more than 60% below the $4.9 billion in payments made in 2011, according to dividend forecasting data compiled by Markit that was released this week.
The reduction comes as prices for metals have been mauled, in part by worries that a slowdown in the Chinese economy will dampen demand for natural resources. The surprise devaluation of the yuan last week by Chinese officials spurred concerns the currency move will hurt imports of metals………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

It was 2012, and energy executives and policy specialists were excited by the promise of shale gas. From Texas to Pennsylvania, a bonanza was under way. But inside the downtown Manhattan offices of S&P Dow Jones Indices, record US gas production was causing a problem. Oversupply was filling storage caverns, reducing returns from futures contracts for the product, disrupting an important benchmark used by investors.
The total return version of the S&P GSCI gas index had collapsed to a value of 0.58 from 100 when it launched. “The index value had declined to such a low level that it became prohibitive for people to price products on it,” recalls Michael McGlone, a former S&P senior director of commodity indexing. “It’s difficult to track an index that’s priced at less than one.”……………………………………….Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Sanford Bernstein Senior Analyst Paul Gait and Bloomberg’s Javier Blas discuss the commodities crunch as oil extends its decline and copper tumbles for a fifth day. They speak to Bloomberg’s Guy Johnson and Caroline Hyde on “Countdown.”.………………………………………Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Oil has been demolished over the past year, falling from $100 a barrel to the low 40s. But one oil expert says things are about to turn the corner once again, and Brent crude is going to surge to $71 a barrel by the end of the year. Credit Suisse energy economist Jan Stuart spoke on Bloomberg TV yesterday, giving the reasons behind his big target.
I admit, my target looks very ambitious. The thinking behind it is that production is rolling already. We know that it’s higher than we thought it was going to be at this stage, but it is rolling. The question is going to be how fast, how far. We think United States crude oil production ends the year below 9 million barrels a day from the 9.6 high…Number two, demand is growing………………………………………….Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

The bear market in U.S. crude will continue, eventually ending one day in “panic liquidation,” widely followed investor Dennis Gartman predicted Wednesday. “It will end when you’ve had an announcement of five or six bankruptcies. It will end when mergers and acquisitions step in and take over,” the founder and editor of The Gartman Letter said
U.S. crude (WTI) futures closed at their lowest in more than six years on Wednesday at $40.80 a barrel after U.S. data showed an unexpected rise in crude stockpiles. Oil has lost about a third of its value since June. U.S. oil production is at record levels and producer costs appear to be declining, with no output scaleback anticipated………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Oil prices will stay low for years to come, derivatives markets say, keeping a lid on inflation and helping boost global growth. Oil has more than halved in value over the last year, thanks to huge oversupply, and many oil companies, particularly in the United States, say they may soon have to rein in production, tightening supply, unless the market recovers.
That has led many analysts to predict that oil - on average around 5 percent of companies’ costs - will see price rises later this year or in 2016, pushing up inflation. But oil derivatives tell another story………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

When OPEC decided last November to keep the spigots open despite lower oil prices, many of us predicted doom for U.S. shale producers. The Saudis, we thought, would use low prices to bankrupt those upstart Americans.
Some upstarts did go bankrupt, but others surprised us with their adaptability. OPEC is still falling apart as energy exporters fend for themselves. Even the strongest members look increasingly vulnerable to low oil prices………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

HSBC, the fourth-largest bank in the world, is predicting that the price of gold will be up 10 per cent by the end of this year and finish the year worth around $1,225 an ounce. Gold is down six per cent year-to-date.
The bank believes Goldman Sachs and other commentators are wrong to say gold will fall in price as interest rates go up. HSBC’s analysis of the data showed that the last four times that the Fed raised interest rates the gold price went up, not down………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Gold bullion closed little changed at $1,117.50, platinum was off 0.3 percent, while silver and palladium were down close to three percent. The base metals sold off again yesterday with copper and aluminium setting fresh lows, with copper breaking below $5,000 to set a low at $4,983 and aluminium reaching $1,549.50. On average, the complex was off 2.1 percent.
This morning the base metals lie between being little changed or higher, with nickel up 0.7 percent at $10,425, aluminium is up 0.3 percent and zinc is up 0.2 percent, while the rest are little changed with copper at $5,014.50, Volume has picked-up to 4,360 lots……………………………………….Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Gold advanced the most in a week after Federal Reserve officials said they need more evidence of strength in the economy and a pickup in inflation, reducing wagers that policy makers will soon raise U.S. interest rates.
Fed officials said they want more indications that the labor market is healing and that inflation is moving toward their goal, according to minutes of last month’s Fed meeting released Wednesday. The prospect of higher rates makes gold unattractive because the metal doesn’t pay interest………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

A higher interest rate scenario in the US also means that Gold may not be so attractive, as Bonds will start carrying higher coupons. Last week’s devaluation of the Yuan created a surge in Gold price over the following two days as investors turned to the shiny metal in search of a safe haven.
Since then the past 4 trading sessions has seen price remain within a fairly tight range between with most action between $1126.00 and $1110. China is the world’s number three market for Gold demand but the devaluation of its currency may have a negative effect in the longer run as Gold quoted in US Dollars becomes more expensive. Last Friday China’s biggest Gold Bullion ETF (exchange traded fund), Huaan Yifu Gold, reported a third consecutive outflow of funds………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Competition within funds industry to launch currency-hedged exchange-traded funds is getting white hot. Deutsche Asset & Wealth Management launched six new ETFs on Wednesday tied to overseas stock indexes in Europe, Australia and Japan. Some of these stake out new territory, but others are clones of what’s already on the market, a strong signal that a land grab in full swing.
Currency-hedged ETFs have become enormously popular in a world where loose central bank policies reign. These neutralize currency shifts — perfect fits for when the Bank of Japan and European Central Bank policies send currencies falling and stocks rising………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

At the end of the second quarter this year, assets in global exchange traded products surpassed those of hedge funds. It was a major milestone for the ETF industry which is just about 25 years old while hedge funds have been around for more than 66 years.
According to London based ETF consulting firm ETFGI, assets in global ETF industry totaled US$2.971 trillion at the end of Q2 2015, while assets in the global hedge fund industry, were US$2.969 trillion. Reasons for the surging popularity of ETFs are not difficult to understand. Most ETFs are low-cost, transparent and tax-efficient products that track the performance of an index………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Assets invested in commodity funds have halved from their peak four years ago, hitting $127bn (£80.9bn) in July, data from Lipper shows. The assets have been hit by both outflows and underperformance of funds, as commodity prices have plummeted.
Over the past three months to July commodity funds have seen $3.2bn in outflows, with the past month alone seeing $1.7bn in outflows, the worst for any asset group. However, over the longer term outflows have been starker, with $39.8bn leaving the funds in the past three years………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

As global metal prices continue to slide, the cost of these commodities in the Indian market have fallen in tandem, ensuring that end users of commodities in India benefit from the price falls.
While global prices tend to set the direction, domestic metal prices are also driven by growth in the local economy, particularly in sectors such as infrastructure and real estate. This time, sluggish growth in these sectors in India has meant that price falls in India and globally are comparable………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Shares in Glencore, the FTSE-100 miner and commodities trader, have slumped to a record low after tumbling prices for coal and metals linked to slowing Chinese demand hit first-half profits.
Glencore closed down just under 10% at 159p, far below its 2011 float price of 530p, as it revealed a slump in earnings. In the first six months of 2015, adjusted earnings before interest, tax and other items fell 29% from a year earlier to $4.6bn (£2.9bn) as the price of aluminium, nickel and other raw materials fell. The company’s net income excluding significant items dropped by 56% to $882m………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Kazakhstan and Vietnam allowed their currencies to fall on Wednesday, fuelling expectations of further depreciations among emerging market countries that could trigger financial solvency problems. The dual impact of China’s renminbi devaluation — and worries about the country’s slowdown — along with anticipation of a US rate rise is weighing on currencies in emerging markets, already feeling the pain of falling commodity prices.
The tenge dropped 4.7 per cent, close to the upper limit of the new trading range set last month by the Kazakh central bank. The oil-dependent central Asian country, which trades heavily with Russia and China, is being buffeted by the fall in the rouble and crude prices………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

With no international (or domestic) agreements on what constitutes currency manipulation, it’s time world leaders take action. With the sudden depreciation of China’s renminbi, it’s worth looking at the link between currency values and trade agreements. China’s currency last week dropped by a cumulative 4.4% against the U.S. dollar, making Chinese exports cheaper and imports into China more expensive by that amount.
The effect on trade can be substantial. With the U.S. average tariff on industrial goods well under 2%, this change in China’s currency value easily swamps most U.S. tariffs. And given the fact that the U.S. dollar was already strong, this move is an added disadvantage to U.S. exports headed for China compared to exports from other countries………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Billionaire has previously funded renewable energy and low-carbon initiatives and has called coal a ‘lethal bullet’ for climate change. Billionaire climate philanthropist George Soros invested more than $2m (£1.3m) in struggling coal giants Peabody Energy and Arch Coal in recent months, despite having once called the fuel “lethal” to the climate.
Filings with the Securities and Exchange commission show that between April and June this year Soros Fund Management (SFM) bought more than 1m shares in Peabody ($2.25m), the world’s largest private coal company, and 500,000 shares in Arch ($188,000)………………………………………..Full Article: Source

Posted on 20 August 2015 by VRS |  Email |Print

Tony Abbott says he will never put the environment ahead of the economy, but it is impossible to segregate the two. In case you haven’t noticed, a lot of economists are very concerned about Tony Abbott’s choice of target for the reduction in greenhouse gas emissions by 2030, to be taken to the international climate change conference at Paris in December.
But if you think that means they believe Abbott’s target is too tough and will do too much damage to the economy, you’ve got the wrong end of the stick. Most would be likely to believe the target should be more ambitious, and few would be concerned that such a target would do significant economic harm. Conventional economic modelling almost invariably shows the loss of economic growth would be surprisingly small, almost trivial………………………………………..Full Article: Source

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