Against the Grain

The US equities cratered in late trading as the temporary ban on short selling was lifted and attention focused on GM with rumours of a credit rating downgrade in the offing sending the share tumbling over 40% to the lowest settlement since 1950, US$ 5.40. This set off a domino effect of equity liquidation (DJI fell 7.33%, NASDAQ 5.5%, Nikkei 9.6%, ASX 8%, Indonesian kept its exchange closed and Russia did not open with the FTSE down 5.5% and DAX 8.3% early). Despite all the measures taken by central banks and governments (many of which remain to be implemented) liquidity remains moribund. Today the G7 finance ministers meet in Washington ahead of the weekend World Bank / IMF annual meeting.

In Asia LME cu tumbled over US$ 400 / tonne in early trading as it led the others lower Shanghai cu was quickly locked in down the 4% limit. The US$ and gold both gained ground as “safe haven” instruments. The weekly Shanghai stocks saw cu rise 9551 tonnes to 25,681; al up 15,397 tonnes to 205,531 and zn rose 1260 tonnes to 72,616. The maelstrom has swept away fundamental and technical considerations as everything keys off equities, rumours and news. In China Spt car sales fell 1.4% to 553 k units, a second consecutive monthly fall and foreign direct investment rose 39.9% in the first 9 months yoy. In India Aug industrial production rose 1.3% yoy, manufacturing which make up 80% of the total gained 1.1% (+8%)(Jul +7.4%). Y/day we reported an arsenic leak at zn / pb operations in China’s Guangxi province it seems it also affected a sn operation after heavy rain caused a spill from a waste pond. Not sure if it affected all three metals or we lost something in translation. The LME stocks had little effect with a 5 k cancellation of cu in Korea, on the week cu rose 11 kt; al up 13 kt; zn increased 4.5 kt; pb fell 1.8 kt; ni off 600 tonnes and sn down 120 tonnes. On the metal front the recent price falls should boost physical trade when calm returns, in the past fortnight cu has fallen 25% relieving the cash flow pressure on traders and a close inspection of LIBOR rates show present rates are lower than those existing in ’06 / ’07. Aug French industrial production fell 0.4% (Jul +1.4%).

The Aug US trade deficit improved to US$ 59.14 billion less than expected as exports fell 2% and imports down 2.4% (Jul –US$ 62.2 billion). The markets braced themselves for more bad news out of the US and ahead of a President Bush statement. The DJI slumped 6% on the opening to below 8000 then rebounded taking cu to 4570 and al 2150. The NYT reported DJI slumped on the opening because world share markets slid but I thought they declined after the DJI fell y/day – a vicious beast (in the first 45 minutes of trading it fell and recovered 700 points). A very worrying development is that the equities are now falling as bond yields move higher.

The week was a sea of red, cu down 1215, al 124, zn 157, pb 246, ni 3075, sn 2750, the exception gold up US$ 50 / oz, oil fell US$ 14.7 / bbl, the DJI off 2684 points and US 10 year bonds up 0.15% in yield.