A selective exposure to resources via BHP Billiton , Woodside Petroleum, AWE and Beach Energy. Valuations relative to the large-cap industrials are now looking attractive.

We favour the superior commodity diversity of BHP to the iron-ore dominated RIO . Global steel production grew by 1.3% in 2012. Looking into 2013, a similar outcome is likely as stronger output in China is countered by the ongoing drag from Europe, the CIS and Japan. The structural upswing in new supply will also gather pace. After a strong start to the year, bulk commodity prices have weakened over the past month – more-so coking coal.

The shaky foundations for the gold price have now been revealed but the ultimate test will come when US interest rates turn. In the meantime, the gold producers have been treated harshly by the market. We remain wary about the medium term outlook for the gold price but for those that aren?t we prefer Millennium Minerals and Doray.

The Australian energy sector is poised to deliver a material step-up in production over coming years. Congratulations to Woodside Petroleum. Mining and Energy stocks would attract broader shareholder support (i.e. a lower cost of capital) and less volatility if shareholders were confident that they would profit from the good times via high dividends. In this regard, the special dividend and 80% pay-out ratio were welcome. We put Woodside into our discretionary Income Portfolio last July with this scenario in mind. While reluctant to chase the stock above ~$38 (the Shell overhang remains) we are happy to hold and receive the ~5% fully franked dividend.

Eoin Treacy's view The RBA's interest rate cut yesterday has been welcomed by the stock market which remains willing to support higher valuations on the expectation that lax monetary policy will continue. The ASX/200 has been consolidating in the region of 5000 since March and hit a new closing high today. A sustained move below 4885 would be required to question medium-term recovery potential.

The resources sector has been particularly hard hit but a number of shares have returned to previous areas of support and valuations have improved. BHP Billiton is bouncing from the A$30 area and a clear downward dynamic would be required to check potential for additional higher to lateral ranging.

Woodside Petroleum tested the A$30 area on a number of occasions in 2011 and 2012 but has held a mild upward bias since July and a sustained move below A$34 would be required to question medium-term scope for continued higher to lateral ranging.