Did Oil Prices Just Find a Bottom?

Author: Frank Holmes
Date Posted: March 11, 2016 Read time: 44 min

As the Middle East’s main business hub, Dubai is the most populous city in the United Arab Emirates (UAE) and home to the world’s tallest manmade structure, the 163-story Burj Khalifa, which climbs to a neck-craning 2,717 feet.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

At 2,717 feet, Burj Khalifa looms over downtown Dubai.

At 2,717 feet, Burj Khalifa looms over downtown Dubai.

As the Middle East’s main business hub, Dubai is the most populous city in the United Arab Emirates (UAE) and home to the world’s tallest manmade structure, the 163-story Burj Khalifa, which climbs to a neck-craning 2,717 feet. Designed by Adrian Smith, who attended Texas A&M University, the Khalifa Tower is an engineering marvel and stands as a symbol not only of the futuristic and forward-thinking look of this oil-rich country but also its emphasis on seeking intellectual capital from all over the world.

This week I had the pleasure of attending the annual Young Presidents’ Organization (YPO) event, held this year in Dubai, where I learned best practices from my peers on leadership as well as how to strike the right balance between business and family life. The YPO has 24,000 peer-to-peer members who together employ 15 million people across 130 countries and generate $6 trillion in revenue every year.

It was an enriching experience, equaled only by my admiration for what the UAE has managed to accomplish with its oil revenues. Tall construction cranes can be seen in every corner of Dubai, signaling urban growth. There are plans to expand its efficient light rail system, which shuttled me from the airport to downtown for only $1. I was happy to see many of the train stations colored gold.

A sleekly designed monorail station in Dubai

Five Guys in Dubai

As is the case in China and elsewhere, spending on infrastructure is key for long-term sustainable growth. Countries and city-states such as Singapore, Hong Kong and now Dubai have spent wisely on new airports, sea ports, subways, light rail and hospitals—all wise fiscal spending that has always given the U.S. a huge advantage. With oil revenues, country leadership has paid for citizens to earn degrees in America and military training in the U.S., including San Antonio, Texas. The city of Dubai has a massive U.S. naval base for regional security.

The Dubai Mall, the second-largest in the world, is a wonder to explore. It contains 1,600 stores and restaurants from the U.S. and Europe and also features the Dubai Aquarium, one of the world’s largest. You truly feel as if you are in America, with the most popular restaurants being Five Guys Burgers and Fries, the Cheesecake Factory and U.S. pizza chains. I was surprised to see Tex-Mex food being delivered on motorcycles.

The Palazzo Versace is one of Dubai's leading 5-star fashion hotels.

This is the sort of extravagance and attention to detail travelers have come to expect from the country’s most popular attractions. At the Palazzo Versace hotel in Dubai, for instance, visitors can beat the desert heat by relaxing in air-conditioned sand. In Abu Dhabi, the Shaikh Zayed Grand Mosque is believed to have the world’s largest carpet, capable of accommodating more than 44,000 worshippers. The intricate craftsmanship of the marble and gold along the walls and columns is breathtaking to behold.

The Sheikh Zayed Mosque

The Impact of Electronic Payments

I also want to point out that the digital banking system has made a huge impact on the UAE’s economy. I just read an article in the Khaleej Times newspaper, reporting that electronic payments have boosted the UAE’s GDP by $3.7 billion in five years. This increase is indicative of a trend of rising card usage across many countries, as you can see in the chart below.

In the same edition of the newspaper, I was interested to read that for the third year in a row, Singapore has been listed as the most expensive city in the world, followed by Zurich and Hong Kong.  According to the article, “Falling commodity prices have created deflationary pressures in some countries, but in others, currency weakness caused by these falls has led to spiraling inflation.”

Light at the End of the Tunnel? The IEA Calls a Bottom in Oil Prices

Despite its relatively small size in population and land mass, the UAE is the world’s sixth-largest oil producer, following the U.S., Saudi Arabia, Russia, China and Canada. Among Organization of Petroleum Exporting Countries (OPEC) members, it’s the second-largest, after Saudi Arabia.

These rankings might very well rise in the coming years, however, as the Middle Eastern country plans to expand production between 30 and 40 percent by 2020, even as Brent crude prices have struggled to crack $40 per barrel.

But on a global scale, oil production is finally dropping—and that’s constructive for prices. In a report released today, the International Energy Agency (IEA) writes that “prices might have bottomed out,” citing a February decline in both OPEC and non-OPEC output and hopes of U.S. dollar weakness.

Although I’m cautious, the current recovery is in line with oil’s seasonality trends for the five- and 15-year periods, which show that prices have risen between March and the beginning of the busy summer travel season.

West Texas Crude Oil Historical Patterns
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The PHLX Oil Service Sector Index has gained 4.4 percent since the beginning of the year, while prices have rallied above their 50-day moving average, touching three-month highs.

Oil Responds to Easonality Trend
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As the IEA points out, this rally is being spurred by optimism that OPEC and Russia can agree on a production freeze—not a cut, as some people think. A meeting date has yet to been decided upon, however, presumably because Iran announced it will not agree to an output freeze until it reaches its pre-sanction market share.

Like Iran, Saudi Arabia has resisted capping production. To plug up the deficit, it’s reportedly seeking up to $8 billion from international banks, the first time it has done so in more than a decade. The kingdom is also considering issuing foreign bonds and listing a part of its state oil company, Saudi Arabian Oil, or Aramco.

With WTI up 25 percent in 2016 and 3 percent in March, investor sentiment has improved since October, when it crossed into “panic” territory for the first time since 2011.

Investor Sentiment Improving after October Dip
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U.S. Companies Looking for $50 Per Barrel

To remain profitable, most U.S. producers need oil prices to be above $50 per barrel—a level we haven’t seen in eight months. In such an environment, U.S. oil companies are finally beginning to make meaningful production cuts, with the IEA expecting producers to remove more than half a million barrels per day from the market this year. In December, the monthly year-over-year change in production turned negative for the first time since September 2011.

U.S. Oil Production Dropping Off
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The number of North American rigs in operation fell below 400 for the first time since December 2009, according to Baker Hughes, helping to support prices.

Oil Prices Jump on Further Rig Count Declines
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Until now, per-well productivity has been slow to budge. Years of $100-per-barrel oil incentivized companies to develop new ways to extract crude, including fracking, and these technological advancements have greatly increased efficiency. Today, not only can a new well be drilled in record time, it can also produce four to five times what it could have only five years ago.

What Oil Companies Can Learn from Airlines

Highly-leveraged companies across the globe have had little choice but to trim their workforces, curb expenditures and let go of undeveloped projects. According to consulting firm AlixPartners, overall capital spending fell 20 percent in 2015, with a further decline of at least 30 percent expected this year.

Global Oil Companies Slash Exploration and Production Spending
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These adjustments, the most severe since the oil rout in the 1980s, have saved or raised global exploration and production (E&P) companies $130 billion, says Deloitte Consulting. But this won’t be enough for many companies: Nearly a third of all pure-play E&P companies worldwide are at high-risk of bankruptcy this year.

That’s not necessarily a bad thing. A little over a decade ago, the airline industry also found itself in extreme duress. A large percentage of carriers landed in bankruptcy court, and a wave of consolidation swept through the industry. Today, airlines are positing record quarterly profits.

In the past year, we’ve already seen some huge mergers and acquisitions in the oil industry—think Dutch Royal Shell and BP, as well as the proposed Halliburton and Baker Hughes deal. It’s likely we’ll see many more in the coming months. In the meantime, short of geopolitical turmoil, a coordinated production cap agreement among OPEC and non-OPEC countries might be the only option to firm up prices.

Uncover the Patterns in Commodity Returns - interactive periodic table

Index Summary

  • The major market indices finished up this week.  The Dow Jones Industrial Average gained 1.21 percent. The S&P 500 Stock Index rose 1.11 percent, while the Nasdaq Composite climbed 0.67 percent. The Russell 2000 small capitalization index gained 0.52 percent this week.
  • The Hang Seng Composite lost 0.07 percent this week; while Taiwan was up 0.72 percent and the KOSPI rose 0.81 percent.
  • The 10-year Treasury bond yield rose 10 basis points to 1.98 percent.

Domestic Equity Market

S&P 500 Economic Sectors
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  • Materials was the best performing sector for the week, increasing by 2.14 percent versus an overall increase of 1.07 percent for the S&P 500.
  • Urban Outfitters was the best performing stock for the week, increasing 19.70 percent. The retailer’s holiday quarter wasn’t great, but share buybacks led to an earnings beat, and that was enough for investors to send the stock higher.
  • Nasdaq agreed to buy the International Securities Exchange, an options exchange operator, for $1.1 billion from Deutsche Boerse. There has been a flurry of activity in the exchange operator space in recent weeks, with much of it centered on the fate of the London Stock Exchange, which has drawn interest from multiple bidders. 


  • Industrials was the worst performing sector for the week, increasing by 0.47 percent versus an overall increase of 1.07 percent for the S&P 500.
  • Williams Cos. was the worst performing stock for the week, falling -16.40 percent. The company announced a reduction in workforce this week, and the stock traded ex-dividend on Thursday, which usually pushes a stock’s price down. That also coincided with a down day for oil, magnifying the downside volatility.
  • The S&P 500 may have entered a temporary trading range, with the floor set by hopes for profit stabilization encouraged by a softer U.S. dollar and easier monetary conditions in the coming quarters. Upside will likely be capped by downward pressure on valuations as a consequence of ongoing credit market stress, particularly in emerging markets, and diminishing confidence in policymaking efficacy and the secular growth outlook.


  • Gold and gold stocks have bounced in recent weeks, but from a multiyear perspective, both remain extremely depressed. While gold has had several false starts in recent years, a number of factors suggest that the latest rally could have durability.
  • The latest manufacturing data showed that pharmaceutical shipments continue to boom, underscoring that top-line momentum has started on a strong foot in the first quarter. That bodes well for pharmaceutical relative performance.
  • Beverage shipments have also soared on a growth rate basis, sending a similar upbeat message for the S&P soft drink names. Importantly, pricing power remains solid, underscoring that the surge in manufacturer shipments likely remains demand-driven.


  • Small caps have enjoyed a modest oversold bounce relative to large caps, but the latest NFIB survey of the small business sector warns that these gains are likely to fully reverse.
  • This latest rebound in global stocks in general, and emerging market/commodities/global cyclical equity sectors in particular, has not been due to an improvement in global industrial data. On the contrary, both global manufacturing and trade data have been very weak.
  • According to BCA, after spending much of the post financial crisis period hovering at one or below, the tech sector’s beta has surged. If the negative broad market bias continues to pan out, tech will suffer disproportionately, as investors shed beta in falling markets.

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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

The Economy and Bond Market



  • Underlying inflationary pressure is strengthening, but recent outsized gains in core PCE inflation overstate the speed of acceleration. Fading slack, and an easing U.S. dollar drag, suggest upside inflationary pressure, but only gradually over time.
  • Initial jobless claims dropped to 259,000, pushing the four-week average to 267,500.
  • Bank of America revised up its forecast for home prices given recent momentum, low interest rates, and lean home supply. The group forecast home prices to rise 3.6 percent this year.


  • Two members of the U.S. Federal Reserve Board spoke publicly this week and came to different conclusions on the inflation outlook. Vice Chair Stanley Fischer said that inflation may be stirring. Meanwhile, Governor Lael Brainard said she wants the Fed to put "a high premium on clear evidence that inflation is moving higher" before tightening monetary policy further. Markets do not expect the Fed to hike rates when the FOMC meets in Washington next week.
  • The National Federation of Independent Businesses’ small-business optimism index deteriorated to 92.9 in February from a prior reading of 93.9.
  • Import prices fell 0.3 percent month-over-month in February, translating into a 6.1 percent year-over-year decline.


  • Amid weakness in capital expenditures and the industrial sector, the outlook for the U.S. economy largely depends on the resilience of consumers. As such, next week’s economic data releases should help monitor growth trends: U.S. retail sales (Tuesday), NAHB homebuilders’ sentiment (Tuesday), housing starts (Wednesday) and consumer sentiment (Friday).
  • European Central Bank (ECB) President Mario Draghi announced an aggressive package of additional measures to ease monetary policy in the eurozone on Thursday, but he blunted his message by suggesting rates will not move further. The euro reversed initial losses following the announcement and ended significantly higher than where it began in Thursday’s session. The euro gave back some of those gains ahead of the weekend but still ended the week higher than before the ECB meeting.
  • Production cuts in the U.S. and a slower ramp-up in Iran’s production are helping to stabilize oil prices, according to the International Energy Agency. U.S. production will decline by 530,000 barrels per day in 2016, the agency said. It does not expect balance to return to the global oil market until well into 2017.


  • There is less slack in the U.S. labor market, as evidenced by a rise in the employment-to-population ratio for prime-aged workers. Historically, the Fed would be expected to lift rates in such a scenario, leading to higher Treasury yields (top panel of chart). However, the market has been taking its cues from the global growth outlook, which is showing no signs of improvement (bottom panel of chart). The Fed has not primed the market for a rate hike at the March FOMC meeting and is therefore unlikely to deliver one. However, policymakers will likely shift focus toward the strong employment data and brewing inflation signs to stress that further rate hikes this year are likely. Given the weakness in non-U.S. growth, any shift toward a more hawkish policy stance will be met with a sharp appreciation of the dollar. This will stem the rally in risk assets and cap the upside in long-dated yields.

March Rate Hike Is Unlikely
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  • "The debilitating impact of persistently negative interest rates on the profitability of the banking sector has emerged as an important consideration," warned the Bank for International Settlements in a report issued this week. Insurance companies and pension plans also faced serious challenges to their business models from unorthodox monetary policy, the central banking organization said. 
  • The world faces a growing risk of economic derailment and needs immediate action to boost demand, according to the International Monetary Fund’s first deputy managing director David Lipton. "Now is the time to decisively support economic activity and put the global economy on a sounder footing," he said. Lipton proposed a three-pronged approach of pro-growth fiscal policies, making the most of monetary policy and pushing forward structural reforms.

Gold Market

This week spot gold closed at $1,249.65, down $9.60 per ounce, or 0.76 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, edged higher by 1.67 percent. Junior miners outperformed seniors for the week as the S&P/TSX Venture Index traded up 2.48 percent. The U.S. Trade-Weighted Dollar Index sank 1.14 percent for the week.

Date Event Survey Actual Prior
Mar-10 ECB Main Refinancing Rate 0.050% 0.000% 0.050%
Mar-10 U.S. Initial Jobless Claims 275k 259k 277k
Mar-11 Germany CPI YoY 0.0% 0.0% 0.0%
Mar-15 U.S. PPI Final Demand YoY 0.1% -0.2%
Mar-16 U.S. Housing Starts 1146k 1099k
Mar-16 U.S. CPI YoY 0.9% 1.4%
Mar-16 U.S. FOMC Rate Decision 0.50% 0.50%
Mar-17 Eurozone CPI Core YoY 0.7% 0.7%
Mar-10 U.S. Initial Jobless Claims 275k 278k


  • The best performing precious metal for the week was palladium with a gain of 3.48 percent.  Both palladium and platinum surged early in the week on speculation that infrastructure spending in China would boost demand for the metals used in auto pollution control devices.
  • Gold investors are on the longest buying spree in five years, reports Bloomberg, with holdings of the precious metal in exchange-traded funds expanding for 18 days in a row. BCA Research agrees that now is the time to buy gold stocks too, stating in a recent report that while gold has had several false starts in recent years, a number of factors suggest that the latest rally will have durability.
  • On Monday Silver Standard Resources announced its agreement to buy outstanding common shares of Claude Resources, with the offer valuing Claude at C$337 million. According to Bloomberg, the price is about a 25 percent premium to the 20-day weighted average price of Silver Standard, and a 30 percent premium to Claude’s closing price on March 4.


  • While platinum did participate early in the week on hopes of China spending, it finished the week down 1.72 percent, predominately driven by a near 2 percent drop on Friday, making the  metal the worst performing precious metal for the week.
  • Price sensitivity is showing up in the gold market.  China reportedly raised its central bank gold reserves by the smallest amount since July 2015, reports Bloomberg. In India, February inbound shipments of gold fell to around 40 tons from 54.9 tons a year earlier, according to a group familiar with provisional Finance Ministry data.
  • New Gold announced this week that it has entered into gold price option contracts covering 270,000 ounces of the company’s remaining 2016 production. In a similar nature, Polyus Gold International hedged half of its expected output this year, reports Bloomberg. It’s clear that many companies are unsure about the current gold price and are locking in profits.


  • Silver may be ready to come out of gold’s shadow, reports Bloomberg, with mine supplies forecast to contract this year. According to Standard Chartered Plc., mine production of silver will probably drop in 2016 for the first time in over a decade and demand is set to outstrip supple for a fourth straight year. Assets in ETFs backed by silver also climbed to the highest since September.
  • Signs of a slowing economy and deflationary pressures pointing to further easing in Europe are catching the attention of gold investors, reports the National Post. Macquarie analyst Michael Gray notes that global yields are now more important for bullion, which explains why there is so much focus on the European Central Bank. In a similar situation sits China and its slowing economy. February foreign trade contracted in the Asian nation, meaning we could see gold prices surge higher.
  • Full employment is edging closer, according to a report from Macquarie Research, as evidence of diminishing labor slack continues to mount. This could put further upward pressure on already firm underlying inflation measures in coming quarters, says the group.


  • Jeffries reports in its Global Equity Strategy, that with U.S. equity markets just shy of their all-time highs but earnings growth tepid, a debate has sparked over the legitimacy of the earnings being reported. The divergence between Generally Agreed Accounting Practices (GAAP) and pro-forma that began from mid-2014 widened annually to around 30 percent in 2015. However, as seen in the chart below, in the fourth quarter of 2015 there was a noticeable deviation between GAAP and pro-forma earnings from mid-2015, the report continues, widening to nearly 70 percent.

U.S. S&P 500 Net Income
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  • The ECB has pulled out all the stops to try and avoid a deflation trap, reports The Telegraph this week, citing the bank’s launch of a triple-stimulus despite criticism from Germany that this will do more harm than good. Jurgen Stark, the ECB’s former chief economist, believes the actions will end in chaos, stating “The ECB is ignoring the increasingly obvious negative side effects of its policy.” The man who invented the term QE, Professor Richard Werner from Southampton University, believes the ECB’s policies could destroy half of Germany’s 1,500 savings and cooperative banks over the next five years, according to the article.
  • Goldman Sachs thinks the commodity rally will fizzle out saying now is an opportunity to short metals, according to Bloomberg. The group forecasts copper and aluminum prices will slide as much as 20 percent over the next year. As Lawrie Williams points out however, Goldman’s call to short gold again hasn’t been the investment bank’s best move; it comments in its latest research report that it is down 5 percent on the call – with a stop loss indicated at 7 percent.

2016 GROW Second Quarter Results Announcement Webcast

Energy and Natural Resources Market



  • The International Energy Agency (IEA) believes that oil prices may have bottomed, and the global oil market rebalancing has moved from 2017 to the second half of 2016. The Agency stated in its monthly report that shrinking production volumes in the U.S. and Latin America may accelerate the demand/supply rebalancing, even after factoring in production growth out of Iran.
  • The best performing sector for the week was the TSX Oil & Gas Exploration and Production index. The index of Canadian explorers and producers rose 3.5 percent for the week on the back of stronger oil prices, which rose 7.3 percent.
  • The best performing stock for the week in the broader natural resource space was South32. The miner rose 21.6 percent as Australian resource companies caught up to last week’s strong performance in major mining stocks out of London. The company was also upgraded to “Buy” at UBS due to its heavy exposure to steel, which has rallied nearly 50 percent this year.


  • U.S. rig count falls to lowest level in at least 67 years. Weekly data by Baker Hughes showed the combined count of oil and gas rigs in the U.S. dropped to a multi-decade record 480 rigs. It is also the 12th straight week of declines, despite oil posting a fourth straight week of gains.
  • The worst performing sector for the week was the FTSE 350 Mining Index. The index of major London-listed mining companies fell 6.4 percent, after much of last week’s excitement abated with disappointing China trade numbers.
  • The worst performing stock for the week in the S&P Global Natural Resources Index was Vale SA. The Brazilian miner fell 12 percent as investors showed concern over news that China’s imports declined for the 16th straight month. China is the single largest buyer of Vale’s products.


  • Gulf Coast refiners are set to benefit from the availability of widely discounted Mexican crude. Tudor Pickering analysts suggest Mexico’s largest oil company will continue cutting prices on Maya heavy crude, which is pricing at one of the deepest discounts to U.S. references since 2008. These wide discounts should provide a boost to Gulf Coast refiners who can use it as a substitute for U.S. WTI crude.

Maya Crude Discounts To Boost Gulf Coast Refiners
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  • Silver has the wind at its sail as the gold-to-silver ratio rises to a seven-year high. Silver’s rally has trailed that of gold this year, sending the gold to silver ratio to 83 times; a signal that it may be undervalued relative to its 10-year average of 60 times.
  • Agriculture prices are heading for the longest rally in four years, as dry weather in growing regions and strengthening demand reduce the outlook for global gluts. This week, the U.S. government cut its outlook for global wheat supplies, while the International Sugar Organization is forecasting that production will fall short of demand.


  • China’s weak trade data may signal weakness for junior resource stocks. China’ exports fell 25 percent year-over-year, while imports dropped 13.8 percent for the same period. The dismal trade data is particularly worrisome for junior resource stocks that have displayed a strong correlation with the data over the past five years.
  • Saudi Arabia may be setting up to increase its oil production. Despite earlier suggestions about an output freeze, a recent OilPrice.com article shows the country’s rig count has surged over the last year, especially in February when its rig count rose by four units to the second highest reading in history. Meanwhile, the U.S. rig count collapsed to its lowest level in recorded history.
  • The commodity rally may have run its course. Goldman Sachs analysts expect the increase in prices to result in more supplies entering the market, thus making it difficult for the advance to be sustained. In addition, the bank’s analysts conclude that there is a low likelihood of a sustained improvement in Chinese demand during the 2016/17 period.

China Region



  • China’s National People’s Congress released its 13th “Five Year Plan” in the last week, providing some affirmation of the “easing bias” to markets by confirming a budget deficit of 3 percent and stressing growth initiatives. This, even as the Chinese government confirmed the widely expected target range of 6.5-7.0 percent annual GDP growth for 2016.
  • The Thai baht strengthened the most in the region for the week, rising about 76 basis points to multi-month highs (or falling, if you are looking at the usual dollar/baht cross).
  • The Philippines Composite Index continued its rise this week, ascending to its 200-day moving average and reaching levels last seen in November.  The Philippine peso also had a positive week, rising about 69 basis points during the last five trading days.

PHilippines Stock Exchange PSEi Index
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  • Both exports and imports declined in China for the February reading.  Year-over-year expectations were for drops of 11.3 and 11.7 percent respectively, but actual readings came in down 25.4 and 13.8 percent.
  • As might be expected following January’s record-shattering new yuan loan and aggregate financing data (that proceeded the Lunar New Year holidays), both numbers dropped significantly in the February reading.
  • Exports in the Philippines for January came in -3.9 percent year-over-year, missing analysts’ expectations for a rise of 0.4 percent.


  • Coming up this weekend, China will release data on industrial production, retail sales, and fixed-asset investment (FAI). 
  • Cyclical Chinese stocks enjoyed something of a bounce following the release of the new Five Year Plan.  In addition, certain local Chinese governments also indicated they will introduce new auto subsidies.  Together these steps may bode well for names like Guangzhou Automobile Group Co. Ltd. (2238 HK), Great Wall Motor Company Ltd., and others.
  • If the Chinese economy shows further signs of stabilization, shares in Chinese indices may rebound.


  • Capital flight remains a concern for China.  Encouragingly, however, China’s foreign exchange reserves fell at a slower pace in February, to about $3.2 trillion.  Regardless, if outflows begin moving in the wrong direction again, the alarm will be raised quickly.
  • The new plan released at China’s National People’s Congress seems to make clear that it is growth, not reform, which constitutes the nation’s primary objective at the moment. This may mean further, albeit expected, delays on the reform front.
  • Mainland Chinese indices have lagged behind other regional indices for the past month, and if the rapidity of the recent run-up in stocks in the region leads to short-term profit taking, mainland China could be front and center for selling once again.

Emerging Europe



  • Ukraine was the best performing country this week, gaining 5.8 percent.  Ukrainian Finance Minister Natalie Jaresko could become the country’s next prime minister. Six months ego she negotiated a $20 billion debt deal which has envoked optimism among investors that if she comes to office she will be able to fight the corruption and get reforms pushed through.
  • The Ukrainian hryvnia was the best performing currency this week, gaining 2.9 percent against the U.S. dollar. February inflation declined more than expected. A year ago inflation stood at 40.3 percent while the latest consumer price index (CPI) number came in at 32.7 percent. The government would like to bring inflation to 12 percent by the end of this year.
  • Consumer staples was the best performing sector among Eastern European markets this week.


  • Russia was the worst performing market this week, losing 10 basis points. Russian equites underperformed, but the ruble was the second best performing currency this week, gaining 2.8 percent against the U.S. dollar. Brent crude oil closed above $40 per barrel, gaining 4.4 percent for the week.
  • The Hungarian forint was the worst relative performing currency this week, gaining 95 basis points against the U.S. dollar. The forint headed for a two-week low, ignoring new Euro-area stimulus measures, as the National Bank of Hungary said more policy easing was needed to fight low inflation.
  • Materials was the worst performing sector among Eastern European markets this week.


  • The leaders of the European Union and Turkey agreed on the outlines of a new plan to stop the inflow on migrants pouring into Europe. The EU is set to increase the 3 billion euros it already committed to help Turkey with millions of refugees. In return, Turkey plans to take back migrants who arrived in Greece from Turkish shores, including Syrian refugees.
  • The EU’s statistics agency on Tuesday confirmed that eurozone GDP was 0.3 percent higher in the final quarter of last year than in the three months to September. It also raised its estimate for economic growth in 2015 as a whole to 1.6 percent from 1.5 percent.
  • Delta Air Lines, a major American airline, stopped its flights to Russia at the beginning of December 2015 and now plans to resume flights to the country staring May 16 this year. According to the head of the Pososhok airline ticket sales agency Kirill Faminsky, the Russian aviation market has passed the peak of the crisis and Delta expects a surge in passenger numbers during the summer season.


  • It seems the ECB has delivered its promise to increase its quantitative easing (QE) plan in order to stimulate the eurozone economy. The Central Bank of Europe cut its short-term interest rates, increased its monthly bond-buying program (from 20 billion euros to 80 billion euros), and expanded its QE program to included corporate bonds in order to make more credit available to businesses. However, Mario Draghi in his press conference played down the likelihood of further rate cuts, suggesting that the central bank is running out of ammunition. On the day of the ECB announcement the euro weakened 1 percent in the early morning trading session, and finished the day up 1.7 percent. 

European Stocks Have Fallen Since Quantitative Easing Began
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  • According to Pavel Kushnir, Deutsche Bank analyst, a fast-strengthening ruble presents a headwind for industry cash flow. Deutsche Bank forecasts the ruble will be at 71 against the U.S. dollar by the end of 2016 when Brent crude oil prices hit $50 per barrel. The Russian currency already reached the 71 mark, and a further 5-percent ruble appreciation toward year-end could reduce oil sector earnings by almost 10 percent.
  • Great Britain will vote on June 23 on whether to stay a member of the 28 nation bloc in a referendum called upon by Prime Minister David Cameron. Mark Carney, governor of the Bank of England, said that the possible departure of the U.K. from the EU represents domestic risk to financial stability. No country has ever left the eurozone.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
DJIA 17,213.31 +206.54 +1.21%
S&P 500 2,022.19 +22.20 +1.11%
S&P Energy 461.90 +8.59 +1.89%
S&P Basic Materials 278.48 +5.84 +2.14%
Nasdaq 4,748.47 +31.45 +0.67%
Russell 2000 1,087.56 +5.62 +0.52%
Hang Seng Composite Index 2,748.54 -1.86 -0.07%
Korean KOSPI Index 1,971.41 +15.78 +0.81%
S&P/TSX Canadian Gold Index 184.83 +3.25 +1.79%
XAU 68.09 +1.34 +2.01%
Gold Futures 1,250.70 -20.00 -1.57%
Oil Futures 38.59 +2.67 +7.43%
Natural Gas Futures 1.81 +0.14 +8.34%
10-Yr Treasury Bond 1.98 +0.11 +5.76%


Monthly Performance
Index Close Monthly
DJIA 17,213.31 +1,298.57 +8.16%
S&P 500 2,022.19 +170.33 +9.20%
S&P Energy 461.90 +53.95 +13.22%
S&P Basic Materials 278.48 +28.75 +11.51%
Nasdaq 4,748.47 +464.87 +10.85%
Russell 2000 1,087.56 +124.08 +12.88%
Hang Seng Composite Index 2,748.54 +135.17 +5.17%
Korean KOSPI Index 1,971.41 +53.62 +2.80%
S&P/TSX Canadian Gold Index 184.83 +17.71 +10.60%
XAU 68.09 +12.69 +22.91%
Gold Futures 1,250.70 +56.10 +4.70%
Oil Futures 38.59 +11.14 +40.58%
Natural Gas Futures 1.81 -0.24 -11.78%
10-Yr Treasury Bond 1.98 +0.31 +18.81%


Quarterly Performance
Index Close Quarterly
DJIA 17,213.31 -51.90 -0.30%
S&P 500 2,022.19 +9.82 +0.49%
S&P Energy 461.90 +18.76 +4.23%
S&P Basic Materials 278.48 +3.22 +1.17%
Nasdaq 4,748.47 -185.00 -3.75%
Russell 2000 1,087.56 -36.05 -3.21%
Hang Seng Composite Index 2,748.54 -199.70 -6.77%
Korean KOSPI Index 1,971.41 +22.79 +1.17%
S&P/TSX Canadian Gold Index 184.83 +50.28 +37.37%
XAU 68.09 +20.68 +43.62%
Gold Futures 1,250.70 +174.30 +16.19%
Oil Futures 38.59 +2.97 +8.34%
Natural Gas Futures 1.81 -0.19 -9.30%
10-Yr Treasury Bond 1.98 -0.15 -6.81%

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Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2015:
Baker Hughes Inc.
Claude Resources Inc.
Delta Airlines
Great Wall Motor Co Ltd.
New Gold Inc.
Silver Standard Resources Inc.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Euro Stoxx 50 is a stock index of Eurozone stocks designed by STOXX, an index provider owned by Deutsche Börse Group and SIX Group. According to STOXX, its goal is "to provide a blue-chip representation of Supersector leaders in the Eurozone".
The Philippine Stock Exchange Composite Index (PSEi) is a major stock market index which tracks the performance of the most representative companies listed on the Philippine Stock Exchange.
The Credit Suisse Risk Appetite Index is a sentiment indicator designed by Credit Suisse comparing risk-adjusted returns across a wide spectrum of global assets.
Core PCE price index is the Federal Reserve’s preferred indicator for gauging inflation.
The National Federation of Independent Business’ Small Business Optimism Index is a composite of ten seasonally adjusted components calculated based on the answers of around 620 NFIB members.
The PHLX Oil Service Sector Index (OSX) is a price weighted index composed of companies involved in the oil services sector.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.
A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).
The S&P Oil & Gas Exploration & Production Select Industry Index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index.
The FTSE 350 Mining Index is a capitalization-weighted index of all stocks designed to measure the performance of the mining sector of the FTSE 350 Index. The index was developed with a base value of 1000 as of December 31, 1985.
The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across 3 primary commodity-related sectors:  agribusiness, energy, and metals & mining.