Against the Grain

The US Federal Reserve’s FOMC begins a two day meeting which is widely expected to see a 0.5% cut in rates. In Asia stocks steadied and even recovered led by the Nikkei (+6%) where a short selling ban was brought forward from Nov 6. Despite steady LME metal prices Shanghai cu for a fifth day fell its 5% limit then recovered. To highlight the slow down in China metals demand a subsidiary of Chalco, the biggest processor of cu said orders fell 20% in Q3 which represented a monthly output of 7 kt per month from 9 kt to 9.5 kt per month in the first half. Further it shows how diverse demand for metals is when as the largest user consumes less than 10 kt of cu per month. On the other hand the Rio Tinto chief economist believes there will be a significant bounce in Chinese demand and prices if the country’s growth remains around 9% next year. The mining group was surprised by the fall in metal prices and their inability so far to recover as the cost of production remains high. Currencies are playing a part, Lihir Gold said the falling A$ was reducing costs. In South Korea Oct consumer confidence fell to 88 (Spt 96) as Spt Japanese retail sales fell 0.5% (+0.7%) and 0.4% yoy the first drop since Jul ’04 (Aug +0.7%).

In Europe good news the Nov German Gfk consumer confidence index was +1.9 (Oct +1.8). However, then bad news Oct French consumer sentiment was -47 (Spt -44). The LME stocks are getting into a pattern of a general rise reflecting lower demand in a slowing global economy except for pb heading for Asia and sn. As well as better equity markets the metals are getting support from a general swirl of stories and rumours about base metal production cuts and postponements.

In the US the Aug Case Shiller home price index of 20 leading cities fell 16.5% (Jul -16.3%) and the news got worse, the Oct Richmond Fed manufacturing index fell to -26 (Spt -18) and the Oct Conference Board consumer sentiment index collapsed to -61.4 (Spt -38).