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ETF Securities-Commodity Monthly Monitor-Commodities see-saw amidst geopolitics and rising yields
April 27, 2018--Summary
If there has been one theme driving global markets over the past month it has been geopolitical risk. At times, the focus has been on the potential for a trade war, primarily between the U.S. and China, but also potentially touching on adjustments to North American Free Trade Agreement (NAFTA).
Subsequently, the focus has shifted away from trade policy and back towards the powder keg in the Middle East. While Syria is the headline issue, tensions between the U.S. and Russia are the true foundation. Commodities have responded over the month. As of 20th April, the Bloomberg Commodity Index had delivered a Year-To-Date (YTD) total return of approximately 2.4%.
Saudi Arabia Equities Take To The Global Stage
April 25, 2018--FTSE Russell recently announced that Saudi Arabia will be assigned Secondary Emerging market status following the March 2018 interim country classification review.
In 2017, FTSE Russell launched the FTSE Saudi Arabia Inclusion Index Series to meet the needs of global institutional investors seeking access to this growing segment of the market. The Saudi Arabia Inclusion Index Series is designed to measure the performance of Saudi Arabia's equity market as the nation embarks on wide-ranging social and economic reforms as part of the Saudi vision 2030 plan.
Private equity funds active in market hit record
April 25, 2018---A high of 2,296 funds operating, according to new report
The number of private equity funds has reached an all-time high as demand from institutional investors for the sector grows in a low interest rate environment, according to a new report.
As of January 2018, a record 2,296 private equity funds were active in the market, seeking to raise an aggregate $744bn, representing a 25 per cent increase compared with a year earlier, the data from the Boston Consulting Group showed. The authors of the report said the increase was being driven partly by ageing founders reluctant to let go of their companies but also growing demand from yield-starved investors for the asset class.
ISDA Publishes New Academic Paper on Margin Requirements for Non-cleared Derivatives Market
April 25, 2018--The International Swaps and Derivatives Association, Inc. (ISDA) has published a new academic paper that analyzes the regulatory initial margin framework for the non-cleared derivatives market. The academic paper, sponsored by ISDA, was written by Rama Cont, Chair of Mathematical Finance at Imperial College London.
The paper examines the rationale for the 10-day liquidity horizon applied under the initial margin rules for non-cleared trades, and assesses whether it is appropriate. The 10-day period is double the five days set for cleared trades.
The research argues that using a fixed liquidation horizon of 10 days is not realistic, and does not take the liquidity characteristics of the assets or the size of the position into account. Instead, the paper recommends that the liquidation horizon should depend on the size of the position relative to the market depth of the asset. It also argues that IM should not be based on the exposure of the initial position over the entire liquidation horizon, but on the exposure over the initial period required to set up the hedge, plus the exposure to the hedged position over the remainder of the liquidation horizon.
view the ISDA Margin Requirements for Non-cleared Derivatives paper
IMF Working Papers-Financial Crises, Macroeconomic Shocks, and the Government Balance Sheet: A Panel Analysis
April 24, 2018--Summary:
Government financial assets are increasingly recognized as playing an important role in assessing fiscal sustainability. However, very little research has been done on the dynamics of government financial assets compared to liabilities. In this paper, we investigate the impact of recent financial crises and macroeconomic shocks on government balance sheets, decomposing the separate effects on financial assets and liabilities.
Using quarterly Government Finance Statistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1 through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate the net financial worth of governments, but no significant impact is found on assets suggesting that they are not being used as fiscal buffers in bad times. On the contrary, countries that suffered both financial and banking crises experienced an "artificial" increase of their asset position through bank bailouts. Macroeconomic shock analyses reveal that government balance sheet items are countercyclical, but important asymmetries are found in their dynamics.
Commodity prices to rise more than expected in 2018: World Bank
April 24, 2018--Oil prices to average $65 a barrel in 2018 on strong demand, producer restraint
Oil prices are forecast to average $65 a barrel over 2018, up from an average of $53 a barrel in 2017, on strong demand from consumers and restraint by oil producers, while metals prices are expected to rise 9 percent this year, also on a pickup in demand and supply constraints, the World Bank said on Tuesday.
Prices for energy commodities-which include oil, natural gas, and coal--are forecast to jump 20 percent in 2018, a 16 percentage point upward revision from October's outlook, the World Bank said in its April Commodity Markets Outlook. The metals index is expected to rise as an 9 percent drop in iron ore prices is offset by increases in all base metals prices, led by nickel, which is forecast to rise 30 percent.
view the World Bank Commodity Markets Outlook Oil Exporters: Policies and Challenges
World Gold Council-Investment Update: Gold tracks the dollar as rates take a back seat
April 23, 2018--Investors often use the direction of the US dollar as a bellwether for gold's performance. However, over recent years, short-term movements in gold have been more heavily influenced by US interest rates and expectations of policy normalisation.
Our analysis shows that the correlation between gold and US rates is waning and that the US dollar is again a stronger indicator of the direction of price. And, in our view, this will continue over coming months-even while the dollar won't explain gold's movements entirely.
Furthermore, the analysis shows that higher real rates have not always resulted in negative gold returns.
World Gold Council-Investment Update: Gold tracks the dollar as rates take a back seat
April 23, 2018--Investors often use the direction of the US dollar as a bellwether for gold's performance. However, over recent years, short-term movements in gold have been more heavily influenced by US interest rates and expectations of policy normalisation.
Our analysis shows that the correlation between gold and US rates is waning and that the US dollar is again a stronger indicator of the direction of price. And, in our view, this will continue over coming months-even while the dollar won't explain gold's movements entirely. Furthermore, the analysis shows that higher real rates have not always resulted in negative gold returns.
