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Commodities

U.S. equity funds shed $2.1 trillion in the quarter

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The bear market set a record. From April to June, U.S. equity funds’ net assets fell 18.6%, or $2.1 trillion, the largest quarterly loss in history for them.

The bear market in U.S. stocks that began this year continues to break records both in the amount of investor funds evaporating and in the rate at which money is fleeing falling assets. The S&P 500 broad market index lost 16.45% in the second quarter, but assets of funds investing in U.S. stocks appeared to have declined even more.

As reported on Monday, citing data from Refinitiv Lipper Reuters, in the second quarter, there was a record reduction in their net assets – by $2.1 trillion – to $9.2 trillion. This, as the agency notes, is the maximum quarterly loss for such funds in history.

In relative terms, this corresponds to a drop of 18.6%, clearly more than the S&P 500. But although it is called a broad market index, the market itself is much broader, and the real structure of fund ownership and investment is different from any index. In addition to the serious drop in stock prices, the size of assets was also affected by investors taking money out.

According to Refinitiv Lipper, last week was the third week in a row that saw an outflow of money from U.S. equity funds. Generally speaking, there have been longer series of outflows this year. This is entirely unsurprising given that the entire first half of the year was also one of the darkest in history for U.S. stocks.

For the S&P 500, the first six months of 2022 were its worst since 1970, losing 20.6% during that period. For the Dow Jones Industrial Average, down 15.3%, it was its worst start to a year since 1962. For the younger Nasdaq Composite, which appeared only in 1971, it was the weakest first half of the year ever (minus 29.5%).

The Vanguard Total Stock Market Index Fund, Inst +, SPDR S&P 500 ETF Trust and Vanguard 500 Index Fund, Admiral showed the biggest declines in absolute terms in the second quarter. They lost $77.5 billion, $70.5 billion and $69.3 billion in net assets, respectively.

The rest of the Top 10 funds by falling assets are, of course, among the largest by absolute size and represent such giants as Fidelity, Vanguard, BlackRock and others. And the top 9 places are occupied by index-tracking funds.

Obviously, against the backdrop of a falling market, the ability to track its dynamics as accurately as possible no longer seems as good an idea to everyone as it used to be. This, however, is commonplace and not really related to the type of funds. Back in the 1980s and 90s, studies were conducted to show that the public was constantly hurting itself. 

At that time managers were taking higher commissions than they do now, and these commissions were also higher than at index funds, which gained popularity in recent decades. So their yields were generally supposed to be lower, but they still did show it (and not so small). But in fact, in the long-term, the mass investor got just a small share of it.

The reason was in constant attempts to guess the right moment to buy or sell stocks or other instruments, and also to choose a fund which would be best suited for this. After many attempts people, firstly, just did not guess, and secondly, paid much higher commissions, additionally reducing profitability. As a result, a strategy like “buy and hold” turned out to be an order of magnitude more effective. Now the stock industry has changed noticeably.



Commodities

Oil settles slightly higher as Iran plays down reported Israeli attack

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By Nicole Jao

NEW YORK (Reuters) -Oil settled slightly higher on Friday, but posted a weekly decline, after Iran played down a reported Israeli attack on its soil, a sign that an escalation of hostilities in the Middle East might be avoided.

Brent futures settled up 18 cents, or 0.21%, at $87.29 a barrel.

The front month U.S. West Texas Intermediate (WTI) crude contract for May ended 41 cents higher, or 0.5%, to $83.14 a barrel. The more active June contract closed 12 cents higher at $82.22 a barrel.

Both benchmarks spiked more than $3 a barrel earlier in the session after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack. However, the gains were capped after Tehran played down the incident and said it did not plan to retaliate.

“It was nothing but a big show, and so the markets deflated as quickly as they spiked,” said Tim Snyder, economist at Matador Economics.

Investors had been closely monitoring Israel’s response to Iranian drone and missile attacks on April 13 that was in turn a response to a presumed Israeli air strike on April 1 that destroyed a building in Iran’s embassy compound in Damascus.

Meanwhile, U.S. lawmakers have added sanctions on Iran’s oil exports to a pending Ukraine aid package after Tehran’s strike on Israel last weekend.

Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.

The International Monetary Fund expects OPEC+ to begin increasing oil output from July, media reported on Friday.

OPEC+ members, led by Saudi Arabia and Russia, last month agreed to extend voluntary output cuts of 2.2 million barrels per day (bpd) until the end of June. That has helped keep oil prices elevated.

As oil’s risk premium has gradually unwound, prices have fallen around 3% since Monday. Both benchmarks posted their biggest weekly loss since February.

Investors, however, are not ruling out the possibility that Middle Eastern tensions will disrupt supply.

Analysts from Goldman Sachs and Commerzbank (ETR:) raised their forecasts on Friday, taking into account geopolitical tensions as well as the prospect of rising demand and restrained supply by OPEC and allies (OPEC+).

“Oil demand is growing at a healthy pace, and supply should be constrained due to the extensions of the voluntary production cuts of OPEC+,” UBS analyst Giovanni Staunovo said.

U.S. energy firms this week added oil and rigs for the first time in five weeks, energy services firm Baker Hughes said in its closely followed report on Friday.

© Reuters. The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019.  REUTERS/Angus Mordant/File Photo

The oil and gas rig count, an early indicator of future output, rose by 2 to 619 in the week to April 19.

Money managers cut their net long futures and options positions in the week to April 16, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

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Commodities

Oil prices in weekly loss as prospect of Iran-Israel escalation cools

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Investing.com– Oil prices fell to weekly loss despite settling higher in volatile trade Friday as investors cooled bets on a wider Middle East conflict after Isreal launched measured attacks on Iran and the latter signaled little appetite to escalated the tit-for-tat skirmish. 

At 14:30 ET (18:30 GMT), rose 0.5% to $83.14 a barrel, while rose 0.3% to $87.33 a barrel. Both contracts ended the week about 3% lower as a stronger dollar on expectations for higher for longer U.S. interest rates weighed. 

Middle East tensions back in focus after Iran explosions

Both benchmarks had soared 3% earlier Friday following reports of the missile strikes in Iran, but geopolitical tensions cooled after Iran played down the attack and appeared to signal no intention to retaliate. 

Iran’s Fars News Agency saying explosions were heard in Isfahan in central Iran, in parts of southern Syria and in parts of Iraq. ABC news reported that U.S. officials said Israel had retaliated against Iran.

Israel’s response following Iran’s attacks against Tel Aviv last week, which was in retaliation for an alleged Israeli strike on an embassy in Damascus/

UN reports recently showed Iran was enriching uranium up to 60%, which was more than levels required for commercial power generation. But it was also below the 90% enrichment level required for an atomic bomb. 

Baker Hughes rig count rises 

Oilfield services firm Baker Hughes Co (NYSE:BKR) reported its weekly U.S. rig count, a leading indicator of future production, rose to 511 from 506, signalling a step up in drilling activity amid a boost from higher oil prices. 

The number of oil rigs are still lagging behind the nearly 600 rig count seen at the same time last year, but domestic oil output is still expected to hit record highs this year as drillers continue to boost efficiency by focusing on the most promising drilling sites. 

Goldman lifts oil forecasts 

“After rallying sharply to just over $90/bbl on rising geopolitical risks, Brent prices have declined to $87/bbl,” said analysts at Goldman Sachs, in a note.

We still see a $90/bbl ceiling on Brent in our base case of nogeopolitical supply hits,” the influential investment bank said. “The reasons are that high spare capacity and higher prices will likely lead OPEC+ to raise production in Q3, inventories remain flat over the past year, and prices are already triggering stabilizing responses, including rises in OPEC exports and lower crude demand from the US SPR and refineries.”

That said, the bank lifts its floor for Brent to $75 a barrel, from $70, saying it assumes only a gradual normalization in the risk premium, and think that OPEC will manage to keep spot prices above long-dated prices through a smaller unwind of production cuts than we assumed before.

Additionally, “we still see value in long oil positions given significant portfolio hedging benefits against geopolitical shocks, and an attractive 10% annualized roll yield.”

It also lifts its Brent forecast to $86 a barrel for the second half of 2024, versus $85 prior, and to $82 a barrel for 2025, from $80.

(Ambar Warrick contributed to this article.)

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Commodities

Gold’s glittering run set for bumpy ride as rate-cut expectations suffer blow

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Investing.com — has glittered its way to record highs on a diet of geopolitical tensions, a weaker dollar, sluggish real yields, but with rate cut expectations suffering a major blow, the yellow metal’s run could soon be on borrowed time. 

“We would not add gold exposure at current prices, and view it as vulnerable on a 6-12 month horizon as forward markets will further unwind Fed rate cut expectations and bond yields have more upside,” Strategists at MRB Partners said in a Friday note.

Gold prices have been riding a perfect macroeconomic storm higher that started in October last year and picked up pace in mid-February against a backdrop of broadly flat real U.S. interest rates and a stable U.S. dollar, the strategists added.

But in recent weeks the dollar and the level of bond yields, particularly real yields, the two dominant cyclical drivers of gold, have been on the up and up, paving the way to a much bumpier path higher for the yellow metal. 

The jump in yields followed a slew of hawkish remarks from Federal Reserve officials including from chairman Jerome Powell, who earlier this week signaled that the recent upside surprises to inflation have knocked the Fed’s confidence to begin cutting rates. 

Traders now see the Fed’s first rate cut in September rather than June, with just two rate cuts priced in for this year, compared with the six or seven estimated previously, and fewer than the three cuts for 2024 that the Fed had projected at its March meeting.      

Gold has, however, appreciated despite this backdrop of higher yields and a stronger dollar, but is 

“now quite overbought,” the strategists warned. The precious metal’s resilience could likely be explained by ongoing momentum as well as a jump in demand for safe-haven assets following a step up in geopolitical tensions.  

Gold’s strength appears to “reflect momentum rather than any specific driver of performance,” MRB Partners said.

But major chinks in gold’s armor may not appear until central bank remove the excess liquidity sloshing around markets.   

“We believe that gold will continue to receive support for as long as there is easy money being provided by central banks,” the strategists added.

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