Short European equities ahead of French elections

Investors are positioning ahead of the European elections, reducing exposure to the European equities

Gold ETPs recorded inflows for the second consecutive week as prices head closer to US$1,300/oz. Following the launch of 59 tomahawks on Syria, markets have been holding their breath, watching officials’ reactions in the US and Russia. Increasing tensions between the West and North Korea have also exacerbated geopolitical fears in the market. Gold continued its price rise last week, reaching US$1,285/oz on Friday. Inflows continued into gold ETPs which rose to US$81mn last week. Inflows into gold ETPs surged US$4.2bn since the trough in flows 20 months ago, remaining US$2bn below its highest level seen in November 2012. Geopolitical tensions however may start to abate as G7 countries are taking a new stance to the crisis, refusing to sanction Russia again as they did in 2014, instead opting for a dialogue in order to convince president Putin to join the allies against Assad’s government.
Oil ETPs continue to see outflows as prices rise back to levels seen at the end of February. Geopolitical tensions between the US and Russia continue to add upward pressure on oil prices, sending both Brent and WTI to 6-week highs last Tuesday. According to the latest Oil Market Report from the International Energy Agency (IEA), global oil supply fell by 755 kb/d in March, attributing it to the OPEC/Non-OPEC agreement. The Energy Information Agency (EIA) also reported a decline of US oil inventories by 2.1mb/d, the largest weekly decline year-to-date. Investors took profit as indicated by the US$8.6mn and US$24.4mn outflows out of Brent and WTI ETPs respectively last week. We continue to believe that a price correction is more than likely in the coming weeks as US oil production continues to increase and we are unlikely to see the OPEC/Non-OPEC agreement extended for another six months with all its current participants.

Investors are positioning ahead of the European elections. Last week saw US$4mn inflows in short DAX ETPs and US$6mn out of long DAX ETPs. While the German election is still few months away, the first round of the French election is on 23rd April. Fear of a populist party winning the election is at the highest ever with odds continuing to rise for Le Pen and Mélenchon to reach the second round. In contrast, investors reduced their exposure to the US dollar against the Euro after Trump complained the US Dollar was too strong. Long EUR short USD ETPs saw US$14.2mn inflows while short EUR long USD ETPs recorded US$4.8mn of outflows last week.

Edith Southammakosane – Multi-Asset Strategist – ETF Securities