Risk Appetite Recovery Drives Jump in Energy and PGM ETC Inflows

into commodity ETCs, with ETFS Crude Oil (CRUD) and ETFS Platinum Trust (PPLT) recording the largest flow increases. Inflows into commodity ETCs this year have been broad-based, with every major commodity sector seeing inflows. The news of the downgrade of nine European countries, included France and Austria which lost their AAA rating, weighed on prices. However, the effect was only temporary as the decision had been expected. The meeting between Eurozone leaders Merkel, Sarkozy and Monti on January 20th will be closely watched by the markets, as investors anticipate a united political front to the European crisis.
The highlights of the economic data calendar this week are the German ZEW economic sentiment index, Chinese growth and unemployment numbers, as well as retail sales in the UK. Although most are likely to highlight continued growth slowdown in 4Q 2010, most of this is already factored into the market. The 2012 outlook will be determined by the ability of policy-makers in Europe to halt sovereign contagion and financial deterioration.

ETFS Crude Oil (CRUD) sees biggest inflows in 20 weeks, with inflows of over $22mn. Energy ETCs closed the week with the biggest inflow since June 2011, mainly driven by net inflows in crude oil. The ongoing dispute in Iran and the strike in Nigeria has led to the emergence of an oil price risk premium in recent weeks. Some investors are investing in oil ETCs as a hedge against a worst case scenario developing in the Middle East. Recent weakness in natural gas, combined with a stronger than expected drop in US stocks drove $2.5mn net inflows into natural gas ETCs.

PGMs receive $18mn of inflows, the highest in 3 weeks. Sustained price weakness and renewed optimism on global growth prompted a $14.7mn of inflows into ETFS Platinum Trust (PPLT) last week. Net speculative futures longs have been gradually rising over the past two weeks on the back of better than expected PMI and industrial production numbers, recovering from December lows.

ETFS Wheat (WEAT) sees largest outflows since September, following the release of the USDA crop report. WEAT and ETFS Leveraged Wheat (LWEA) saw around $6mn of outflows. Higher than expected US stocks and a 3.2% increase in acreage for US winter wheat prompted a general sell-off in the corn and wheat markets last week. ETFS Agriculture (AIGA) saw another week of inflows, receiving $4.3mn.

Another week of inflows for broad commodities, driven by ETFS All Commodities (AIGC). AIGC received $4.6m net inflows last week as improved economic expectations prompted investors to increase exposure to cyclical commodities.