ETF Express: Week Ending 15 December 2023

ETF Express is Global X’s weekly coverage of the latest ETF Market Moves, Thematic Spotlight and Commodity Calls.

  • Physical palladium (ETPMPD) was the top performer of the week after the UK announced a sanction on Russian metals.1 Russia currently produces almost half of the world’s palladium and a possible sanction would significantly limit access to this supply.
  • Short equity funds (BBOZ, BBUS, BEAR, SNAS) were the poorest performers last week after the FOMC made the decision to keep rates unchanged for their third meeting in a row.2 Fed Chair Jerome Powell also clarified that rate cuts were now on the Fed’s agenda, leading the market to believe interest rates are now at, or near their peak.
  • There were $581.2 million in reported inflows for the week, and only $230.6 million in outflows, marking a week of net inflows for the Australian ETF industry.

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Crypto Cracks US$41,000 as SEC Call Approaches

Cryptocurrency & Blockchain

Bitcoin bulls are ready to charge into 2024 as there are now less than 30 days before US regulators, the SEC, must decide on whether physically backed Bitcoin ETFs will be allowed to trade on American stock exchanges.3 In anticipation of the SEC giving the green light, Bitcoin and Ethereum prices have been steadily increasing throughout the year, with Bitcoin prices soaring almost 150% to US$41,000 year to date.

Cathie Wood’s Ark Investment Bitcoin ETF in collaboration with 21Shares will be the first to be assessed by the SEC.4 However, more than 10 other companies, including ETF giants such as BlackRock and Fidelity, are also looking to be greenlit over the same period.5 Should Ark Investment’s application be approved, it is likely that the other will follow. Outside of the US, spot crypto ETFs already exist – Global X, for example, launched the first spot Bitcoin and Ethereum ETFs in the Asia Pacific in 2022. Traders seem confident that the US will soon follow. Bitcoin futures have priced the digital asset at US$50,000 by January 2024, representing a ~20% upside on its current value.6

But how does the listing of a Bitcoin ETF impact the cryptocurrency directly? Some analysts liken the current institutional focus on Bitcoin to the launch of the first international gold ETF in 2003.7 The idea being that the listing of Bitcoin on a traditional medium such as an ETF will open new channels for capital to flow into ‘digital gold’, much like it did for physical gold. Globally, physical gold ETFs grew to US$200bn AUM within 20 years of their launch – this was over a period in which ETFs themselves were growing in popularity.8 Now the market is familiar with the concept of ETFs, Bloomberg Intelligence estimates that the opportunity for a spot Bitcoin ETF is upwards of US$100 billion in the long-run,9 and in the short term, Reuters estimates the funds could attract anywhere from US$3 billion to US$55 billion within its first five years.10

Access physical Bitcoin with EBTC.

 

Palladium

Bullish

  • The UK has announced a sanction on Russian metals, preventing citizens and companies from purchasing commodities such as copper, nickel, aluminium, lead, and zinc from the country.11
  • While palladium was not specifically mentioned in the new legislation, traders were concerned as Russia currently produces almost half of the world’s palladium supply.12 The threat of a possible sanction sent palladium prices up by as much as 17% over the weekend.
  • It is not yet clear how impactful these sanctions will be on metal prices overall. The UK itself is not a huge consumer of metals, however there may be implications for the many companies incorporated in the country, including traders such as Glencore and other major banks.

Bearish

  • Palladium demand is driven by its industrial usage as a catalytic converter for internal combustion engine vehicles. As electric vehicles increase in market share, palladium demand will likely also fall.

Explore physical palladium with ETPMPD.

Lithium

Bullish

  • Canada is set to announce that all new cars in the country will have to be zero emissions by 2035.14
  • Zero-emission vehicles, such as battery-electric or hydrogen powered models, must represent 20% of all car sales by 2026, 60% by 2030, and 100% by 2035.15 Electric vehicles use more than 10 times the lithium of traditional ICE vehicles.16

Bearish

  • Lithium prices have cratered ~80% year to date due to a combination of expanding supply and slowing growth in EV sales.17
  • Lithium miners were heavily incentivised to increase supply as lithium prices rallied to all-time highs in mid-2022, however EV sales growth failed to keep pace as consumers cut back on new purchases due to increased borrowing costs.18

Explore lithium with ACDC.

Crude Oil

Bullish

  • Crude oil prices rallied last week as the US dollar weakened and the Fed left interest rate unchanged.19 The FOMC gave their strongest signals to date that it is adopting a more dovish approach for 2024. Oil tends to outperform in a strong economic environment, which tends to correlate with lower interest rates.
  • A storm off the coast of the Baltic Sea has forced Russia to temporarily suspend two-thirds of its shipments of crude oil last week.20 Overall, Russia’s western ports are planned to load around 1.9 billion bpd in December, down 6% MoM.

Bearish

  • US oil producers have ramped up production to record levels as OPEC looks to continue supply cuts.
  • The US Energy Information Administration estimated US crude production for 2023 would average 12.5 million bpd. However, in recent estimates, the US has managed to pump out roughly 13.3 million bpd.21 The excess production makes for a difference in expectations of almost 1 million bpd, equivalent to the total output of Venezuela, a major OPEC member.22

Explore crude oil with BCOM.

 

Forecasts are not guaranteed, and undue reliance should not be placed on them. This information is based on views held by Global X or referenced sources as at 19th December 2023.