Improved Metal Price Cyclical Postioning

The cyclical positioning of metal prices has improved over the past month while remaining consistent with a below average cyclical trough (as illustrated in the updated chart). The improved pricing environment was helped by U.S. dollar depreciation during June although that has stalled more recently with the UK vote to drop its European Union membership. Consistent with earlier cycles, some firming in prices can be expected even without a clear improvement in underlying demand or a material rundown in inventories. Within the indices, there are also likely to be ebbs and flows which average out to only modest gains while the cyclical adjustment continues. While this does not appear a particularly exciting investment environment, it is better than what has gone before. Importantly, too, it does remove a layer of risk within the equity market opening the way for more buoyant equity prices which could outperform the commodity prices to which the companies are exposed. PortfolioDirect has retained its view that equity return patterns will resemble those in the late 1990s while metal prices move through a prolonged cyclical trough.