Softs

A Fed rate hike by December could erode the slowly evolving fundamentals favoring base metals.

Clearing the refined-product overhang in the global storage markets is not as straightforward as it used to be: The Kingdom of Saudi Arabia (KSA), China, and India all are making concerted efforts to boost refining capacity, which is leaving them with surplus product that ends up being sold in export markets.

Refiners will reduce run rates over the next month or so to clear unintended inventory accumulation, but it's not like they've never had to deal with this situation.

Commodity speculation provides liquidity to hedgers, allows price discovery, and offers access to an asset class that typically produces returns that are not correlated with stock or bond returns.

Our strategic and tactical trades were up an average 24.6% in 2016Q2, led by strategic energy recommendations. Going forward, we continue to favor energy exposure over base and precious metals, ags and softs.

Global oil demand will continue to surprise to the upside over the balance of the year - growing at a rate of 1.6 MMb/d - following an unexpected surge over the first five months of 2016.

Increasing uncertainty over the Brexit vote will keep the Fed from raising its overnight policy rate at this week's FOMC meeting, but it may not keep the USD from rallying in the event of a decisive win for Brexit advocates on June 23.

China's 4.7 trillion RMB (~ $720 billion) fiscal stimulus program will be more bullish for base metals, particularly copper, than we initially surmised.

While the Fed's recent forward guidance leading markets to increase the odds of a policy-rate hike earlier than previously expected will restrain the recovery in crude oil prices, fundamentals will dominate price formation now that markets have rebalanced.

Against a backdrop of continuing supply destruction, particularly in the U.S., and a pick-up in crude demand, markets will remain in balance this quarter and go into a deficit in 2016H2.