Against the Grain

Is the recovery real that is the nagging worry we suspect in most peoples mind as base metals move higher. The impetus is coming from Asia as Chinese traders believe their economy will recover thanks to the large dollop of stimulus and perhaps more to come. The Chinese economic system of “planned capitalism” and significant reserves means the government’s efforts will not be as transparent as the pronouncements in G7 and other more democratic emerging markets. This opaqueness allows the market to speculate early and then await evidence later. We believe the world economy is seeking out a foundation from which to build a recovery. While unemployment and other numbers will continues to worsen more forward looking numbers will steady and turn higher. For a start it appears we might have seen an end to the period of “weekend banking shocks” that petrified the markets at the backend of ’08.

Both cu and zn traded limit up on the Shanghai markets and generated good Far East select turnover. In Japan Jan machine tool orders fell 84.4% yoy (Dec -71.8%). The LME stocks got back into their old form with significant rises in al (Rott 12,975, Antwerp 4825) and ni (Rott 654 and Sing 600). Perhaps a note of caution on the metal demand front is the latest cancelled warrants data where most metals show them at less than 2% (ni 0%) the exception sn standing at 17%. The Feb Euroland Sentix investor confidence index was -36.1 (Jan -34.4).

The metals struggled to find any real direction the Asian highs seemed to rich while no one wanted to bet against further rises. Oil advanced while more worrying US 10 year bond yields broke above 3% and as the US$ weakens gold falls.