Central bank band-aids not enough to halt risk aversion move

The continued gloomy outlook for economic activity and the rising threat of default in the Eurozone has kept investors wary of exposures to cyclically geared assets, with cyclically-oriented commodity ETPs experiencing net outflows last week. Central banks increased liquidity measures in a concerted fashion last week, but disappointment over continued…

lack of policy moves to tackle growing solvency issues has kept investors on edge. Advance growth indicators including Euozone PMIs and Germany’s ZEW will likely continue to set to tone this week barring any statements of significance following the US Fed meeting this weekor indications of Greece’s progress in placating the EU/IMF.

Diversified commodity ETCs snapped a six-week run of outflows, with $10mn of net inflows last week. Widespread commodity price falls last week appeared to provide some investors with the needed impetus to build broader commodity exposure. However, investors appear unsure of future developments, with inflows split between long and short exposures. ETFS Short All Commodities (SAGR) received inflows of $6.8mn, while ETFS All Commodities (AIGC) saw $3.3mn of inflows last week.

Gold price nears record levels in Euros and Sterling as crisis boosts USD. Gold has hovered just below the record highs of €1,356 and £1,179 in Euros and Sterling respectively last week, as the declining risk appetite of investors prompted a defensive move into USD assets. Physically-backed gold ETCs saw outflows of $173mn last week, with all of it from European listed Gold ETCs.
US-listed ETFS Physical Swiss Gold Shares (SGOL) actually received $9mn of inflows. While central bank activity was the catalyst for short-term gains in risk assets toward the end of last week, defensive assets remain in strong demand as investors focus on politician’s continuing failure to resolve the ongoing structural solvency problems of the Eurozone union.

ETFS Short Copper (SCOP) sees largest flows in 17 weeks, totalling $6.8mn. While demand for some industrial metals fromemerging Asian economies remains strong, price declines in 2011 have kept investors wary. Some investors have taken advantage the global economic uncertainty by going short industrial metals, ETFS short industrial metal ETCs seeing inflows in eight of the past ten weeks.

Modest agricultural outflows of $7mn last week, dominated by ETFS Wheat (WEAT) and ETFS Soybeans (SOYB). Investors reduced exposures to single agricultural ECs, but added positions in diversified agriculture, with ETFS Agriculture (AIGA) receiving $3mn last week. Offsetting the diversified inflows were outflows of $6mn for SOYB and $3.5 for WEAT.