Against the Grain

Amongst all the wild moves in the past month perhaps the most unsettling is the cracks that have appeared in the EU, after last weeks move by Ireland and Greece to unilaterally guarantee all bank deposits the major EU leaders met in Paris Sat and agreed a joint co ordinated approach to the crisis. By Sun this was in tatters as Germany unilaterally guaranteed all bank deposits after the near collapse of its second largest mortgage bank. How easy it is for everyone to get on in the good times. Meanwhile Icelandic financial institutions seem to have been rescued from meltdown. Y/day world equity markets again saw heavy selling with the FTSE down a record daily move of 8%. In US time things stabilised as the DJI recovered from an 8% fall to end off 3%. In Brazil the Bovespa fell 15% in local currency terms as trading was halted twice before recovering 12% by the close. In Asia the Australian Reserve Bank cut rates by 1% to 6%, BoJ left rates unchanged at 0.5% and India cut by 0.5% to 8.5% setting off hope of a co ordinated round of global cuts. This saw Europe open with a sigh of relief with talk of the UK government considering taking a share in major UK banks.

The metals seem to be keying off oil as it tested US$ 91 / bbl cu got to 5700, then oil fell back and LME stocks came out showing cu rising 9600 tonnes. In the next hour oil fell below 90 and cu was under 5500. Oil tacked higher so did the metals with cu just under 5600 in extremely nervous trading. In Shanghai cu was locked in limit down for a second day and if it happens for a third session tomorrow then trading will be suspended Thurs. After European car sales slid 16% in Aug General Motors Europe is suspending all operations in the region for a month as they look to reduce production by 40 k vehicle by the end of the year. In Europe Aug UK industrial production fell 0.6% (Jul -04%) and yoy down 2.3% while manufacturing output fell 0.4% and yoy -1.9%, manufacturing is 14% of UK GDP with services 75%. In Germany Aug factory orders rose 3.6% with some big ticket items (Jul -1.3%) and -7.6% yoy.

During the rings oil back above US$ 91 / bbl adding support to the metals again. The US session began with Fed’s hands on the fibrillator again as it announced the setting up of a Commercial Paper Funding Facility to buy unsecured short term debt that companies rely on to finance activities and encourage investors back into the market. We are continually hearing that there is plenty of liquidity on the side lines waiting to be tempted back into commerce however that depends on how great the destruction of wealth has been. The DJI was quickly up over 100 points then eased back, the IMF is putting US bank losses at US$ 1.4 trillion. In Peru workers at Freeport’s Cerro Verde cu mine (300 ktpa) suggest they will end their strike Thurs.