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Quarterly OutlookOle Sloth Hansen Head of Commodity Strategy

October 22, 2013

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Global industrial production is bouncing back

Inventory drawdown harmed 2013 production but is near its end

Higher production going forward due to higher demand and rebuilding of stockpiles

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China will continue to grow at moderate pace

China facing severe long term problems in its need torebalance its economy towards a more sustainable pathof higher personal consumption and less investment

The near-term outlook growth should hold up

Investment spending will remain strong

Limited fiscal stimulus, such as urban redevelopment willsupport growth in 2014

Fading austerity in the euro area will help Chinese exports

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The big theme is the repricing between equities and bonds

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US earnings season so far

Good start to US earnings season

71% positive EPS surprise

Revenue growth better than expected

Banks continue to improve, especially BofA

Prefer cyclicals like financials, auto, industrials

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European conviction list

Russian examples which are driven by high return and strong momentum:M Video / MegaFon / Sollers / Sistema / Magnit

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Fedtaper talkwas de facto radical tightening.

- Merely the mention of tapering hurt the bond market, liquidity and many emergingmarkets

- Big EM cleanup on the way current accounts must be repaired

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Fed accidentally tightened mortgages.

US housing market will slow but remain a positivecontributor

Rising mortgage rates are normal in an improving economy(sharp rises could disrupt)

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US 30-year mortgagerate

Source: Bloomberg, Saxo Bank

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Europe ECB not playing ball with other central banks

- ECB balance sheet shrinking as Feds balloons ever bigger

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Broken BRICs

Source: blog.yardeni.com

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Versus recovery in Developed Markets

Source: blog.yardeni.com

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Long term issue:fiscal breakevenfor crude oil?

Russian FX reserves stable to falling despite still relatively high price of oil

(White line is Russian reserves and Yellow is Brent)

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Remember the carry

Russian Ruble remains strong when carry taken into consideration

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Ruble still vulnerable if Feds taper talk returns

Despite strong current account surplus, Ruble also hit by global tightening from US rate riseswhen US Federal Reserve talked tapering.

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Ruble and US government bond yields

Ruble Basket (LHS) US 5-year yield (RHS)

Source: Bloomberg and Saxo Bank Strategy & Research

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Commodity prices still supported but runaway rallies are behind us

Upside risks

Extreme weather events

Geo-political events

Labour disputes and strike actions

Unexpected strong EM rebound

Excessive global liquidity

Inflation

Downside risks

Production catching up with demand

Slowing growth rates in EM and China

US economy hitting a soft patch

Dollar appreciation

Lack of credit for commodity transactions

1. Prices already close to cost floors

2. EM demand slowing after years ofstrong activity

3. Supply growth constrained

4. Positive skew to event risk

5. DM growth less raw material intensivethan EM

High volatility = high risk/reward

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Year to date performance

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Year to date sector performance

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Different index different performance

Energy32%

Indust.17%

Precious15%

Grain23%

Meats5%

Softs8%

DJ-UBS

Energy70%

Indust.7%

Precious3%

Grain11%

Meats5%

Softs4% S&P GSCI

Commodities included:

DJ-UBS 19

S&P GSCI 21

DB CI 6

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Broadbased Commodity Fund Performances(31/12/12=100)

DB Opt Yield Div CI (DBC:arcx)

ipath DJ-UBS CI (DJP:arcx)

iShares S&P GSCI (GSG:arcx)


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Investment demand slowing due to significant reduction in gold

Total investments in commodities have fallen to $349 bn dollars from $427 bn in2012

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Gold near term weakness as US interest rate cycle turns

Supporting gold

Surging physical demand from emerging economies

Central Bank gold buying at a 40 year high

Long liquidation from institutional investors slowing

Low price resulting in less supply

Tapering delayed well into 2014

Risk to gold

Rising real interest rates

Lack of inflationary pressures despite massive stimulus

Global growth continuing to improve

Demand for safe-haven assets are slowing

India raising import taxes

Switch fromrisk on/offtogrowth on

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2008 2009 2010 2011 2012 2013Source: Bloomberg and Saxo Bank

Gold exposure in Futures and ETP's

Futures, MT

ETP holdings, MT

Spot Gold, USD/oz, right

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Gold and 10-year US real rates

Gold, USD/oz

US 10-year real rates (rhs, inv)


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Silver dependant of continued investment demand

Investment demand remains strong

Strong link to gold industrial metals provides an additional driver

Pick-up in global growth

potentially outperforming gold into 2014

BUT the market is full of inventory so depending oncontinued investor support

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70Gold / Silver Ratio

Ratio

ource: oom erg an axo an

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USD/ounce

Source: Bloomberg and Saxo Bank

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Copper Supply growing at a time of slowing EM demand

Improved growth prospects in DM pushing up realinterest rates

While putting EM assets, currencies and growthprospects under pressure

Not good news for industrial metals demand ingeneral

Copper supply will rise in 2014 creating a surplusfor a second year running

HG Copper stuck in a 3.2 to 3.4 per lb range (LMECopper: 7000 to 7500 per tons range)

Sell into rallies as upside looks limited

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Oil price remain sandwiched between 95 and 120 USD/barrel

Non-OPEC supply forecast to rise by 1.7 mmb/d in2014

A key reason behind the limited impact fromsupply disruptions within OPEC

WTI discount lower as Cushing inventories arefalling

Bottleneck potentially moving to the Gulf of Mexico

Near-term risk points towards lower prices

Weak refinery margins slowing demand

Rising supply as outages are resolved

Producers need high prices so expect support at 100USD/barrel

To balance budgets

New production techniques uneconomical

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Geo-political risk premium in oil becoming a constant feature

Sectarian violence in Iraq with bombings andshootings are back on the rise.

Syria conflict sharpening divide betweenShiite (pro Assad) and Sunni (pro rebels)

Parliament elections scheduled for April

10.6% of OPEC total production

In Nigeria an estimated 100,000 barrelsper day is stolen by criminals

Ruined pipelines preventing output ofanother 400,000 b/d

7% of OPEC total production

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But some potential bright spots emerging.

Raised hopes that Iranian sanctions mayeventually be reduced

8.4% of OPEC production (12.6% in Jan-11)

Libyan oil production hard hit by strikes,militias and political activists

1% of OPEC production (5.4% in Jan-11)

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US has become the worlds largest producer of oil liquids

US now largest oil liquid supplier in the world(crude, ngl and biofuels)

PIRA sees the gap to SA and Russia increaseuntil 2020 and then retained until 2030.

Texas the worlds top ten producing country.

Could become a top five within the next five

years

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US has a serious energy price advantage..

http://www.businessinsider.com/most-important-charts-in-the-world-q4-2013-10#francisco-blanch-bofa-merrill-lynch-101

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Forward prices reacting less to near-term risks

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Brent Crude, 1-month

Brent Crude, 12-month

Brent Crude, 36 month


Arab SpringIran sanctions

Syria crisis

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Finally - Keep an eye on the Big Boys

24-Sep-13 Long Change Short Change Net position Net Change 1 yr high 1 yr low Price change

WTI Crude (CME) 302,446 -13,648 27,348 -7,787 275,098 -5,861 334,094 100,021 -2.2%

WTI Crude (ICE) 57,893 -1,687 10,739 333 47,154 -2,020 49,174 6,425

RBOB Gasoline 49,471 -7,549 7,697 -2,255 41,774 -5,294 90,542 23,216 -0.1%

Heating Oil 39,973 -7,777 17,943 680 22,030 -8,457 52,961 -21,336 -1.2%

NatGas (4 contr.) 276,444 -6,837 456,475 56,050 -6.8%

Gold 111,170 1,953 32,516 -6,588 78,654 8,541 198,194 31,197 0.5%

Silver 24,175 -888 11,977 906 12,198 -1,794 38,618 -2,982 -0.9%

Platinum 34,609 285 5,507 341 29,102 -56 42,559 17,229 -0.3%

Palladium 23,570 179 1,528 -621 22,042 800 25,742 6,278 1.8%

HG Copper 29,218 2,140 23,934 -6,951 5,284 9,091 24,531 -38,951 1.0%

Soybeans 160,835 -13,367 25,583 -868 135,252 -12,499 176,907 43,580 -2.2%

Soybean Meal 76,122 193 14,824 2,285 61,298 -2,092 69,890 16,421 -3.4%

Soybean Oil 50,466 1,266 75,047 3,074 -24,581 -1,808 7,419 -55,111 -0.4%

Corn 192,454 391 318,799 22,525 -126,345 -22,134 282,849 -126,345 -1.2%

Wheat (CBOT) 97,825 4,820 132,825 -11,062 -35,000 15,882 55,269 -50,882 2.4%

Wheat (KCBT) 41,431 1,013 25,762 1 15,669 1,012 51,666 -7,866 2.1%

Sugar 176,462 6,059 114,094 -27,926 62,368 33,985 75,479 -88,140 3.8%

Cocoa 84,184 1,306 15,848 916 68,336 390 68,336 10,343 -0.4%

Coffee 33,215 -347 56,165 -2,597 -22,950 2,250 -172 -30,162 2.5%

Cotton 50,121 962 5,729 -658 44,392 1,620 82,715 -19,327 -0.5%

Orange Juice 2,827 -1,072 1,755 720 1,072 -1,792 8,819 -1,798 -0.4%

Live Cattle 85,478 7,071 46,323 -3,695 39,155 10,766 64,165 1,947 1.7%

Feeder Cattle 8,838 2,161 1,229 -788 7,609 2,949 7,609 -3,767 0.9%

Lean Hogs 115,934 978 17,982 -1,898 97,952 2,876 97,952 -11,446 1.7%

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Speculative positioning an important directional guide

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Source: Saxo Bank, CFTC, Bloomberg

WTI Crude

Long

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Price (rhs)

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Thank you!

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European versus US equities

S&P 500 fwd. P/E 14.5

STOXX 600 fwd. P/E 13.6

S&P 500 EPS growth 6.0% YoY

STOXX 600 EPS growth -3.3% YoY

Prefer US equities over European

However, peripheral European equities are the

greatest opportunity around

Expect European EPS growth to turn positive in

2014 on economy

S&P 500 12-month target is 1,950

Documents

2013_Q4_OLH