Against the Grain

The emerging markets are centre stage as they re couple with the G7 in a direction that no one anticipated, as ’08 began the BRIC nations and other emerging countries were going to lead the world forward on a trajectory of never ending growth. Investors flocked to commodities as a proxy to this new paradigm. When the financial markets began to batter the G7 it seemed the wise had chosen well and the BRIC and emerging nations would miraculously miss the storm after all it was their domestic growth credentials that would carry them forward. Perhaps it was just the size of the turbulence that saw investors lose faith in the new economies but one must suspect that there is more to it than that. Wherever you look in the emerging markets there are drastic actions being taken, large rate cuts or hikes, IMF support, markets closed and other government type intervention.

Investors punished Asian markets or did the markets punish investors trying to flee, the Nikkei fell 6.3%, Hang Sang 4%, ASX 1.5%, China’s CSI 300 5.2%, India’s Sensex 5.2%, Philippines 12%. The yen strengthened after a statement by the G7 of its move but no action was seen as official impotency in the present situation. The Shanghai cu and zn contacts returned to trading only to again fall the 4% limit. South Korea cut interest rates 0.75% to 4.25%. In the non traded markets commodities are also under pressure, the Oct 24 weekly Newcastle thermal coal price fell 8.3% to A$ 96 / mt, the lowest level since Jan. The European equities opened lower however the percentage moves are misleading and levels soon steadied. The LME stocks saw rises dominate except for pb that continues its long term decline, Italy saw 650 tonnes out almost certainly heading for Asia. The ILZSG saw both zn and pb in surplus in the period Jan to Aug ’08 with zn at 108 kt and pb 34 kt. The IAI reported Spt inventories at 2.985 million tonnes (Aug 3.024 mill tonnes). The Oct German Ifo institute business climate index was 90.2 (Spt 92.9).

In the US markets began with some good news with Spt new home sales rising 2.7% at 464 k units (Aug -11.5% at 452 k units). Then the data took a worse turn, the Oct Dallas Red manufacturing outlook survey for Texas was -59.4 (Spt -39.6) and the Oct Chicago Fed Midwest manufacturing index was 2.6% lower at 100.6 (Spt -2.6% 103.3). At time of writing the DJI is struggling to stay positive.