Our proprietary implied positioning methodology which looks for asymmetric responses to UBS growth surprises in asset returns shows that for the second month industrial metals show signs of positive positioning.
For the second consecutive month Industrial metals show stronger selling on bad news than buying on good news suggesting positive positioning. Energy is displaying the same dynamic, suggesting to us that investors are positioned for an oil bounce. In rates HK 3y rates are falling sharply on good EM news but not rising so much on bad news, suggesting short positioning. In FX USDNZD is falling twice as fast (NZD strengthening vs. USD) on bad news as it rises on good news which suggests long USD vs. NZD positioning.
Speculative futures positioning indicates decoupling between US and the rest of DM countries on persistent growth concerns in Europe and Japan. Over the last 2 weeks, USD continues to strengthen against EUR due to divergence between a dovish ECB and a hawkish Fed. AUD continues to weaken due to lingering growth concerns in China and continued rhetoric by the RBA. Investors continue to cut long positions in oil due to growth concerns in Europe and emerging economies and OPEC’s reluctance to cut supply.
Overall net inflows in equity exchange traded products continued in October. Equity inflows were dominated by US equities ($7.9bn) as the US market bounced back after a sharp correction; whilst all other regions including Europe (-$1.7bn) and EM (-$3.3bn) saw outflows. After recent volatility in global markets, investors seem to have preferred fixed income especially in Europe ($1.1bn) and EM sovereign debt ($0.6bn).
European corporate bonds witnessed multi-year high inflows as investors continued to search for yield amid low inflation concerns. US high yield ($1.9bn) and Treasuries ($8.8bn) also saw large inflows.The same is true for energy, as markets seem to be positioned for a bounce in the price of oil after the 30% fall in Brent crude since June. In FX the New Zealand dollar has steadily weakened vs. the US dollar for four months and implied positioning suggests that investors expect this trend to continue.