Energy and Natural Resources Market Cheat Sheet (September 12, 2011)
Strengths
- Despite market volatility, the Global Resources Fund traded roughly in-line with our benchmark this week. Relative outperformance came mainly from the fundās weighting in precious metals and agricultural securities.
- The FAO Food Price Index (FFPI) is up 26 percent from a year ago with prices set to remain high amid mounting concern over corn stock levels.
- Brazilian mining giant Vale is not seeing any slowdown in the global iron ore market despite a growing crisis in Europe and a weak U.S. economy.
Weaknesses
- The Basic Materials and Energy sectors fell by an average of 5 percent this week, driven mainly by concerns over slowing global economic growth.
- The U.S. Dollar Index broke above 77 on Friday, as traders sold the Euro and other commodity currencies in the face of further macro risks out of the Europe.
- Commodities gave back some of last weekās gains as global markets continue to focus on Europeās sovereign debt risks and the health of related bank equities. Copper fell 3 percent this week, and crossed briefly below the key $4.00 per pound level, while gold and silver declined by 1.2 percent and 3.8 percent, respectively.
- Global oil demand is expected to grow less than previously projected next year as the economy slows. World consumption will rise by 1.39 million barrels per day (bpd) or around 1.6 percent next year, the Energy Information Administration said, around 250,000 bpd less than forecasted a month ago.
Opportunities
- The U.S. could create more than 1 million jobs by 2030 by expanding offshore drilling, limiting federal regulation of shale gas development and quickly approving a Canadian oil sands pipeline, according to a study commissioned by an oil industry group.
- Steel output in China, the worldās top steel producer, is likely to hit a new record in excess of 700 million tons this year based on first-half production, according to the China Iron & Steel Association.
Threats
- President Obama may struggle to get his proposed $450 billion jobs stimulus passed by Congress given reluctance to increase deficits, as well as a strong pre-election year partisanship.
- Protesters battled riot police with rocks and homemade bombs on Thursday in a protest against Colombiaās fourth-largest oil producer, Petrominerales Ltd., forcing the Canadian firm to suspend output.
- Freeport McMoRan Copper & Goldās Indonesia mine workers have announced plans to strike indefinitely from September 15 unless the company meets their pay raise demands.
