Against the Grain

Each year we do a one page market view in which we lay out where we think the markets will head and it is the foundation on which the Against the Grain is framed. In Jul ’07 we saw the super commodity cycle remaining in tact however noting caution about growth and wondering if it was peaking. One of our three risks was the financial collapse of a bank or a country. While we accept the demise of banks it was a jolt when a country (other than Zimbabwe) enters the frame, it seems Iceland’s financial sector has melted away.

Asian markets marked time overnight as they took in the rate cuts of y/day and further cuts by South Korea, Taiwan and HK. In the base metals Shanghai cu trading was suspended after three consecutive days of limit down trading, later the exchange issued an instruction for cu shorts to buy back positions we believe this is at the last traded price before trading was suspended at yuan 45,760 / tonne. This is similar to action taken in the Shanghai rubber contract and Dalian grain markets y/day. In Japan Aug machine orders fell 14.5% (Jul -3.9%) yoy -13% (-4.7%), Spt Australian unemployment rose to 4.3% (Aug 4.15) and in South Africa Aug manufacturing rose 0.4% yoy (Jul +3.5%) and accounts for 16% of GDP. In Europe the Spt German wholesale price index fell 0.6% (-1.8%) and yoy +5.8% (+7.4%) reflecting the drop in commodity prices.  It is reported that China’s Guangxi region has closed smelters with annual pb / zn production capacity of 500 kt after an accidental discharge of arsenic; this could cut the country’s Q4 output in the metals by 20% or 20 kt of combined metals. The LME stocks were dominated by a 5825 rise in zn stock with the material into Dubai. As the price of exchange commodities tumble it appears that non traded commodity prices are also under pressure. It is reported that Chinese steel mills are reducing iron ore deliveries with cash prices off 17% in the last week of Spt. The ni miner Eramet has restarted metal output from the Doniambo smelter in New Caledonia after maintenance.

The US weekly jobless claims fell 20 k to 478 k from previous 497 k. As we think our markets spiral out of control spare a thought for Zimbabwe were official Jul inflation was 231,000,000%, whatever that means! There seems to be an uneasy calm in the markets this afternoon as the digest the momentous events of the last few days. At 15:00 Aug wholesale inventories rose 0.8% (Jul +1.5%) as sales declined. Another casualty of the commodity turndown is the Baltic dry freight index that has fallen 79% since the May record high and back to ’06 levels. Metal prices fluctuated in the afternoon in line with US equities.