One explanation for what's going on in the markets . . .

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Here’s a pleasant take on what’s going on in the markets, brought to you by the commodities research team at Barclays today in their daily newsletter:

THE COMMODITY INVESTOR

Q2 deja vu

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What has in recent years become the traditional Q2 collapse in commodities prices is currently in full swing with those two familiar harbingers of doom, European sovereign debt and a Chinese hard landing, once again casting their baleful shadow over proceedings. Even gold, the one beacon of light in the downturns of Q2 10 and Q2 11 has failed to live up to expectations this time round.

Markets are clearly positioning for a further deterioration in the economic outlook, but while China’s April activity data were worryingly weak, elsewhere, even in Europe, the flow of macro-economic data has been mildly encouraging. If that continues to be the case, and China is in the process of bottoming, as our economists expect, then markets may need to move soon to price in a slightly more benign growth scenario, though perhaps not until after the next Greek elections in June.
Buying the Q2 lows has been a profitable strategy in each of the past two years and we think that pattern will hold this time, though timing, discretion and nimble trading will be key. Currently our highest conviction views are long copper, soybeans and palladium, while in energy we continue to advocate a long position in fuel oil on rising Saudi Arabian demand and lower Iranian exports.
Following a relatively strong start to the year commodity investment flows remained in negative territory in April, though the $1bn outflow was only half that of March. Commodity-linked ETPs saw the largest share of outflows (-$1.5bn, with -$1.1 from physically backed precious metals, mainly gold), index swaps saw a small outflow (-$0.2bn) and MTNs were the only category to receive inflows of $0.7bn.

Note the line: “Currently our highest conviction views are long copper, soybeans and palladium, while in energy we continue to advocate a long position in fuel oil on rising Saudi Arabian demand and lower Iranian exports.”