Focus: Commodities at a crossroads
Commodities are at a crossroads after a big 26% rally this year, with risks from China’s slowdown and virus third wave. We see Chinese demand stabilizing and green-transition impact picking up. Commodities have a rare sweet-spot of strong demand, tight supply, and rising investor demand, on inflation and weaker USD outlooks. This is seen in the recent NatGas and Aluminium surges, for example. We favour industrial metals, energy, and ag, with precious lagging. Related Smart Portfolios include @RenewableEnergy, @OilWorldWide, @GoldWorldWide.
Markets remain on edge
It was another nervy week, with cross-currents of better-than-feared US inflation and retail sales, but with mounting China slowdown and property risks. We see markets well-supported, with some volatility to be expected, but growth concerns to ease. Japanese equities continued their election-driven rally, whilst Hong Kong and Brazil were weaker. Real estate and utilities softened as US bond yields inched up. See our global markets presentation here for background.
Average returns rarely happen
S&P 500 average annual return is 8.6%, but hardly ever seen. The implications from this are: 1) focus on the direction (up) not exact forecast; 2) avoid the small number of big drawdowns, and 3) markets rise 3/4 the time.
Biggest ever DAX index change
Germany’s main DAX equity index has its biggest ever overhaul Sept. 20th, growing from 30 to 40 stocks, but keeping its cyclical focus.
Surprise tech performer
Comparing big tech across the world surprisingly shows Europe — from ASML to CAP — as the best performing and most expensive. Whilst China tech may not be cheap enough, with valuations still similar to the well positioned US FAANGM’s. EM ex China tech is the cheapest.
Crypto recovery led by altcoins
Bitcoin (BTC) continued its recovery from the prior week ‘flash crash’. It’s c70% price return this year is by far the most of all asset classes. Cinema chain AMC (AMC) will now accept crypto in the latest sign of broadening acceptance. Altcoins TRON (TRX) and Aave (AAVE) were among best weekly performers, respectively boosted by NFT demand and new-project conjecture.
China fears are the commodity focus
China’s weaker-than-feared August economic data and potential bankruptcy of big property company Evergrande (03333.HK) hit confidence in the world’s no.1 commodity importer.
The week ahead: Central Bank week
1) Fed meets (Wed) with focus on tapering timing, and with UK, Japan, and China central banks also meeting. 2) Global PMI data (Thu) will provide a timely update on the growth outlook in US, Europe, UK, and Japan. 3) Key upcoming elections in Canada (20th) and Germany (26th). 4) Busier earnings week with reports from sector leaders ADBE, FDX, NKE, and COST.
Our key views: Staying the course
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support, offsetting virus third wave and Fed tightening risks. We like assets helped by this growth: equities, commodities, crypto, and are cautious fixed income, and the USD.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.