Against the Grain

Equity markets reacted badly to Bernanke stating the blindingly obvious, recovery will take time and effort and contrary to press opinion politicians cannot wave a wand and create an instant fix. The markets tumbled again like dominos overnight DJI off 8%, NASDAQ 8.5%, Nikkei 9.7%, ASX 6.7%. The Fed Beige Book (ahead of the Oct 28 FOMC meeting) said reports indicated that economic activity weakened in September across all twelve Federal Reserve Districts. Several Districts also noted that their contacts had become more pessimistic about the economic outlook.

The metals fell in Asian time with cu falling US$ 375 / tonne to a low of US$ 4545 in early London trading. The LME stocks continue to be dominated by al up 9225 tonnes Rott received 4 k, Far East 2 k and US 3.5 k and zn rising 4525 into Johore. Equities in Europe dropped at the opening then staged a recovery which lifted the metals with the FTSE falling nearly 6%. There was evidence of trade buying as a fresh 33 month low in cu saw new long term consumer buying levels triggered. Tata Steel is to cut crude steel production 20% (1 million tonnes) at their European Corus subsidiary. While in China research group expects an 11% decline in Oct steel output (5 million tonnes) reducing iron ore and coking coal demand. A port strike at the Chilean Antofagasta port has delayed an Xstrata shipment.

In the US the weekly initial jobless claims fell to 461 k from previous 478 k. While Spt CPI was unmoved and 4.9% yoy (Aug -0.1%), ex food and energy rose 0.1% (+0.2%) +2.5% yoy with energy prices down 1.9% and food increasing by 0.6%. Then Spt industrial production fell 2.8% a bad figure distorted by plant closures during hurricanes (Aug -1.1%) and capacity utilisation 76.4 % not pretty (78.7%). At 15:00 the Oct Philadelphia Fed manufacturing index -37 the worst month in 18 years, worryingly employment collapsed (Spt +3.8). The equities reacted accordingly with the DJI off over 350 points (4%) during the pm rings, its getting a bit deceptive as the DJI goes lower so the percentage gets larger. Gold dropped over US$ 50 / ounce as investors moved into cash, inflation worries eased and this despite mines in South Africa being closed for safety checks. At one stage oil was below US$ 70 / bbl. The DJI rallied into the London close lift the metals off their lows.

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