extract from alan kohler's eureka daily market rep

But all the action is in the commodity markets, and Citigroup's economists in Sydney, led by Shane Lee and Paul Brennan have put out an interesting study on it. The summary says this: "With inflation contained so far and the global saving glut, real 10 year US bond yields have stayed well below levels reached prior to previous commodity price downswings (4% vs. today’s 3%). Further positive differences in this cycle are China’s imprint on commodity demand, the slower supply response to rising commodity prices and the strong appetite for risk which continues to encourage significant inflows into commodity funds. However, markets also need to keep an eye on other central banks, which are only beginning the process of normalising interest rates, most notably the BOJ, and in China the authorities likely will introduce further measures to slow the faster than expected growth. "As a result, we have trimmed our 2007 forecast for global economic growth, but to meaningfully impact the outlook for risk appetite and commodity prices further downgrades would be needed.” Indeed, if current base metal prices hold out to 2008, Zinifex, Jubilee Mines, Oxiana, Minara and Alumina would all double their earnings over 2007 and 2008 relative to current estimates.
A wild card in the outlook for resource sector profits is movements in the exchange rate. Jubilee Mines and Oxiana benefit most from a lower Australian dollar, while BHP and RIO Tinto are better placed should the
Australian dollar rise further.