In addition the passing of a free trade agreement with Canada, the Government of Colombia also signed a free trade agreement with the European Union on May 19, 2010. This agreement, with Colombia's most important trade partner after the US, should see phased reductions in tariffs and also provides Colombia with an even footing with other countries such as Chile, which have already negotiated free trade agreements with the EU. GDP strength continues with impressive Q1/10 increase

During Q1/10, Colombia's GDP saw an impressive 4.4% year-over-year increase. This continued the trend shown in Figure 4 of increases in GDP that reversed a three quarter negative trend that started in Q4/08. Consensus median GDP estimates for the next four quarters call for continuing increases in year-over-year economic growth. Commencing with Q3/10, Colombia's GDP is expected to increase 3.1%, 3.6% in Q3, 3.4% in Q4 and 3.7% in Q1/11. On a yearly basis, GDP growth is forecast to be 3.3% (up from previous estimate of 2.9%) in 2010 and 3.7% (down from previous estimate of 4.1%) in 2011. The most recent review by the International Monetary Fund published in May 2010 is calling for yearly GDP growth of 2.25% in 2010, 4.0% and 5.0% respectively for 2011 and 2012.

All in all, GDP data has continually improved on a year-over-year basis, and estimates for Colombian productivity point to further GDP output gains in the upcoming quarters. This will be reflected by the continued strength in Colombian oil and gas production.

Consumer Price Index
During Q2/10, Colombia's quarterly CPI crept up marginally from 2.0% to 2.1%. However, the downtrend in CPI has clearly bottomed and estimates are for CPI to increase along with the country's GDP as the overall Colombian economy improves. Estimates are for CPI to increase through the next year to as much as 3.5%. This is at the high end of the Colombian Central Bank target range of 3% plus or minus 1%.

Central bank lending rate
In November 2008, the Colombian central bank rate was 10%. Since that time the bank rate has been cut ten times to near-historical lows of 3.0% in April 2010. In its most recent rate announcement in June, the central bank kept rates unchanged at 3.0%, which remains the lowest recorded level for the Colombian central bank rate since at least 1998 (no data prior to 1998 is available).

Eoin Treacy's view Colombia has benefitted from a peace dividend as the focus of the international drug war has moved to Mexico; allowing the country's considerable resources to be developed free from the threat of imminent destruction. The Colombian stock market has been one of the better performers internationally and is one of the few to have broken upwards to new all time highs this year.

The Index had become relatively overextended compared to the 200-day MA when it encountered at least short-term resistance in the region of the 13,500 level this week. Some reversion towards the mean, defined by the 200-day MA is now more likely. However, a sustained move below that area, currently in the region of 12,000 would be required to question the consistency of the medium-term uptrend.

Energy, to which much of the above report is devoted, has recently shown a high degree of bullish commonality. Oil rallied back towards the $80 area last week, found at least short-term support in the region of $76 this week and would need to sustain a move below that level to question current scope for some further upside.

Gasoline ranged mostly below $200 from June 2009 to February 2010. It tested $250 by May and has now pulled back and is finding support in the region of $200. A sustained move below that level would be required to question scope for further higher to lateral ranging.

Natural gas prices ranged just above $4 from March to May, before rallying to $5.25. They subsequently pulled back to test the upper side of the three-month range and are rallying once more. A sustained move below $4.30 would now be required to limit potential for some additional upside.

Thermal coal remains in a relatively consistent uptrend and uranium is beginning to show signs of renewed investor interest after a two-year hiatus.

All of these charts indicate renewed interest in the energy sector which offers a tailwind for energy related stock markets, renewable energy initiatives leveraged to high energy prices, traditional energy plays and unconventional oil and gas companies.