Against the Grain

The US Senate last night passed the Troubled Asset Relief Programme (TARP) bill and sent it off to the House of Representatives for their ratification possibly tomorrow. The original 3 page Paulson bill has be sculptured by the legalise of Congress into over 450 pages, which included US$ 100 billion of tax cuts. It completely overshadowed the Senates approval of the US – India Nuclear Cooperation Approval and Nonproliferation Enhancement Act which had a bigger majority in favour of 86 votes as opposed to 74 for TARP.

In this week’s Newsweek Oct 6 the editor Fareed Zakaria interviewed Chinese PM Wen Jiabao, one of his questions was China is the largest holder of U.S. Treasury bills — by some accounts, they ‘ re worth almost $1 trillion. Can you reassure [Americans] that China would never use this status as a weapon in some way? “We believe that the U.S. real economy is still solidly based, particularly the high-tech and basic industries. Something has gone wrong in the virtual economy, but if this problem is properly addressed, it is still possible to stabilize the economy. The Chinese government hopes to see sustained development in the United States, as that will benefit China. Of course, we are concerned about the safety and security of Chinese money here. But we believe that the United States is a credible country. And particularly at such difficult times, China has reached out to the United States. And actually we believe such a helping hand will help stabilize the entire global economy and finance and prevent major chaos from occurring … I believe now that cooperation is everything”. See attached a further article in the magazine by Ruchir Sharma head of global merging markets at Morgan Stanley “Too Large to Grow So Fast” (www.newsweek.com).

Travelling y/day so here is a summary of the Spt manufacturing PMI data the JP Morgan global composite was 44.2 (Aug 48.6), official Chinese data 51.2 (48.4), original Chinese CLSA 47.7 (49.2), Russia 49.8 (49.4), Euroland 45.0 (47.6), UK 41.0 (45.9) and US 43.5 (49.9) – all pretty grim. Furthermore Spt US auto sales were off 27% yoy at 964 k units the first monthly fall below 1 million units since ’93. The strength of the US$ over the past 48 hours has put significant pressure on the base metals as it moved to €1.390, it seems the currency is now the main driver. The LME stocks movements were minimal topped by pb rising 600 tonnes. In Peru workers at Freeport’s Cerro Verde SXEW cu mine (320 ktpa) are set to strike from this afternoon after a strike in Jne. In NZ, Rio Tinto is restoring the 11% idled capacity shut in May at its Tiwai Point al smelter (350 ktpa) after rains restored hydroelectric output and reduced power costs, the process will take 10 weeks. The Aug Euroland PPI fell 0.5% (Jul +1.3%) and increased 8.5% yoy (9.5%). The ECB left rates unchanged at 4.25% and in the press conference Trichet said slowing economy is alleviating inflation setting of € selling below 1.38 and cu broke the 200 dma support at 6100.

In the US the Wall Street crisis seems to be spreading to Main Street through small companies that are no longer able to get loans from the banks. The Census Bureau says small businesses employ 40 % and account for half of the national output. The weekly jobless claims were 497 k from previous revised up 3 k to 496 k. At 15:00 the Aug factory orders fell 4.0% (Jul revised to +0.7% from +1.3%) with durable goods revised to -4.8% from -4.5%. US equities moved lower as traders began looking beyond TARP and worries arose about the state of the economy.