Why do semiconductor inflows matter?

  • According to JPMorgan, semiconductor ETFs recorded approximately 12.7 billion dollars in net inflows last week, leading sectors for a second consecutive week and exceeding the 9.3 billion dollar record set in late July. Investors again bought the dip and showed a greater preference for unleveraged products.
  • Unleveraged SOXX and SMH drew 6.5 billion and 2.6 billion dollars respectively. Leveraged ETF SOXL attracted 2.8 billion dollars, its second-highest weekly inflow on record, but still well below the previous week's 7.2 billion dollars.
  • Interest was concentrated in semiconductors: flows were generally weak outside the sector, with utilities, materials and financials all seeing outflows.

How did bond and gold flows change?

  • US-listed equity ETFs recorded net inflows of 23.4 billion dollars last week, close to the historical average; fixed-income ETFs attracted 15.2 billion dollars, reflecting relatively strong demand; and commodity ETFs saw net outflows of 1.6 billion dollars.
  • Municipal bond ETFs attracted 4.4 billion dollars, maintaining strong inflows for a fourth consecutive week, though at a slower pace; intermediate-term government bond ETFs drew 2.8 billion dollars. Money market ETFs saw 900 million dollars in outflows over the same period.
  • Precious metals ETFs saw outflows of approximately 1.6 billion dollars, including 2.3 billion dollars from gold ETF GLD. Liquid alternative investment ETFs recorded their first weekly outflow in about three months, mainly from managed futures products.

Why do CTA signals point to lower equity risk?

  • JPMorgan believes CTAs may have sold US equities as volatility rose and short-term momentum signals for the S&P 500 and Nasdaq 100 turned negative; Japanese equities may also have been sold. CTAs typically adjust futures exposure based on trend signals.
  • The bank's CTA indicator combines momentum across four time horizons and three moving averages to estimate the direction trend traders may be positioned in. Meanwhile, S&P 500 futures saw substantial net buying overall last week: market-wide futures flows and model signals for a particular strategy observe different dimensions.
  • Regional flows also diverged: Canadian equity ETFs saw relatively strong inflows, while Brazilian equity ETFs were roughly flat after two consecutive weeks of strong inflows. JPMorgan estimates that CTAs may have sold Brazilian stock indices and the real when Brazil's market fell on the morning of 26 October.

Where did futures positions move in opposite directions?

  • In CFTC data as of 20 October, leveraged funds substantially covered short positions in Russell 2000 equity index futures while increasing shorts in ultra-long US Treasury futures. Asset managers, meanwhile, increased holdings of ultra-long Treasury futures and reduced some shorter-maturity Treasury futures positions.
  • JPMorgan also estimates that CTAs may have reduced related short positions as short-term momentum in US and European interest-rate futures turned positive. Changes involving different investors and different reporting dates need to be considered separately.