Analysts and strategists at UBS share their views on commodities
Q: What is your take on recent developments in base metals?
A: We were concerned over the base metals in early April, because of the potential for a global synchronised slowdown over the summer and into Q4, and because of the potential for risk capital to exit positions. We now believe that the slowdown is priced in, and we anticipate a return of funds to the sector over the coming months.
Q: Why do you prefer iron ore miners to European steels?
A: We prefer the large-cap iron ore miners because they have repaired their balance sheets, because they are set to generate strong cashflows and because valuation has become compelling. The European steels face margin squeeze over the remainder of the year, and balance sheets remain more highly geared.
Q: What's your view on gold?
A: We are constructive on gold. Gold is a schizophrenic metal. It has performed well and in line with risk assets when the US is reflating. But it can also act as a call on debt monetisation – when, in times of stress, markets begin to price in a move to quantitative easing. Both positive facets should support gold over the next year.
Q: Are there any signs that dollar funding issues are set to ease?
A: There are growing signals from policy makers that there will be intervention to ease dollar funding concerns. The market is showing some signs of stabilisation; Libor has steadied over the past week or two. Global foreign exchange reserves have exploded over the past three weeks, after flatlining since early February.