As mentioned above, the concern around a China pull-back remains. In the mining sector, the performance of steel and iron ore as key building blocks for the emerging Chinese economy have become key barometers used by the equity market to gauge the strength of the Chinese economy. In the chart below, we show monthly Chinese steel production. We note that:

2011 was a strong year for steel production growth in China;

2012 was very weak and we believe was a “pause” period before the change in government. This period of weakness has been interpreted by the market as the roll-over of the Chinese economy and the reduction in Chinese demand (i.e. negative growth);

In 2013, we have seen a resumption in steel production growth and have also not witnessed the slowdown in the second half as production steel production and inventories recover from last year’s dip. This has not yet been accompanied by a resumption in the valuation of the mining sector.

Eoin Treacy's view The mining sector has invested hundreds of billions in developing new supply over the last decade. A great deal of this investment has come on line in the last few years which has contributed to downward pressure on prices even as global economic growth encountered problems. While it is undeniable that the sector now has catch-up potential relative to the wider market, it is likely in need of a catalyst in the form of more impressive global growth expectations to reignite investor interest beyond the short term.

The Dow Jones Euro Stoxx Basic Resources Index has rallied back to test the upper side of its two-year base. It will need to sustain a move above 200 to confirm a return to medium-term demand dominance.

The Dow Jones Europe Stoxx Basic Resources Index ETF which includes UK, Swiss and Scandinavian listed resources companies has returned to test the region of the lower side of overhead range and the region of the 200-day MA. It will need to hold a move above €42 to confirm a return to medium-term demand dominance. The Europe Stoxx Basic Resources Index has yet to demonstrate a conclusive break of its three-year relative downtrend against the wider market.