Global Commodities Focus — Stumbling Toward ‘Normalcy’: 2Q’16Confronting extraordinary volatility and led by energy, commodity markets arestumbling to normalcy. Across commodities, cost curves are stabilizing andsupply/demand fundamentals are moving toward equilibrium if not deficit. For thefirst time in about three years, probabilities around a base-case are shifting to thebullish rather than the bearish side. Citi expects markets to remain choppy intothe summer, depending on fickle financial flows, growing open interest infinancially-traded commodities and the persistent growth of high frequencytrading. Energy is uniquely critical to a commodities rebound, given the energyintensity across commodities, Oil markets now look likely to enter a period ofsustained inventory draws, ushering in higher prices, propelled by demandgrowth and declining non-OPEC production. Supply-side disruptions look morelikely than lower demand or higher supply. But energy and therefore allcommodity prices can be capped by a return to drilling in unconventionalresources.Metals & Mining — Too Fast Too Soon – Taking Sector Stance to BearishSector Performance — The UK metals and mining sector is up 47% since wepublished our last chart pack on 29th Jan 2016 (link), at that time we suggestedthat valuations were by and large pricing the pessimism and on an individualstock basis we saw value in the sector. Fast forward only three months and theseconditions have now flipped, in the short term, we think that the stocks have runtoo hard too fast & valuations look stretched both on an absolute and relativebasis. We are switching our 6-month view on the sector to Bearish from Neutral,however we note the longer-term outlook for the sector has improved.