Against the Grain

The US$ moved significantly higher overnight as “good news” vanished, the Governor of the BoE declared the UK to be entering recession with the banking system close to collapse and the country far from the end of the road back to stability. This saw investors focus on slowing global growth and potential cuts in interest rates. This time y/day global equities were advancing while today its is disorganised retreat after the DJI was off 2.5% - the Nikkei down 6.8%, Korea 8.3%, India 3.7%, ASX 3.4%, Hang Sang 5.9%, China’s CSI 300 index -1.9% and in South America Brazil 1% and Argentina a special case dumped 11%. Following moves by the government to take over pension funds an analyst said Argentina was disappearing into irrelevance. The talking heads are at it again, Nov 15 Bush is holding a G20 global economic summit in Washington.

The metals did not stand a chance, a stronger US$, weaker oil and Shanghai cu and zn again locked in limit down prices buckled with cu trading below 4300 off US$ 200 from Tues kerb close. The weekly US ABC / Washington Post consumer sentiment index was -50 from previous -47 while gasoline demand there has fallen 6% yoy. In Asia, Japanese Aug all industry index was -1.8% (Jul +0.8%). The Australian Q3 inflation rates rose 1.2% to 5% yoy (Q2 +1.5%). Mining giant BHP reported disappointing Spt Q cu and ni production data including a 32% reduction in Escondida mine production caused by lower ore grades and mechanical problems. Like its peer group it acknowledged a slowing in Chinese demand for its commodities. In China al producer Chalco aims to cut al capacity by 18% equivalent to 720 ktpa, however as we know Chinese production cuts do not always crack up to what is expected. In its metal market there is now an avalanche of stories about defaults and delays in transactions of scrap and metal.  The Korean stainless steel maker Posco is cutting production by over 30% this quarter, which collates monthly reductions already announced. It is reported that Spt global crude steel output declined 3.2% to 108.4 million tonnes. The big guns stood out in the LME stocks cu rose 1850 tonnes Rott 1075 and St L 1275 while al up 2 kt Johore 1425 and US 750.

In the kerb the floodgates opened as the gravitational pull took hold, lower European equities, a strong US$ and weaker oil cascaded in on the metals only zn managed to withstand the pressure. The selling was compounded by the spectre of a weak US opening, which eventuate with the DJI quickly off 300 points over 3% on worries about corporate earnings. The selling pressure on everything eased around 16:00 signalling small recoveries.

We will leave you with this; former executives of the rating agencies are testifying in Congress, one said originators of structured securities “typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality”.