Against the Grain

All major financial markets are in limbo ahead of the US Senate vote on the Obama economic plan expected today (the bill then has to be finalised as the two houses agree compromises on their separate views). Our worry is after the initial euphoria of the package’s legislative passage the devil in the detail will disappoint as the market realise that it is a long term plan with very little short term oomph. On top of this Treasury Secretary Geithner is expected to unveil a new bail out plan for the banks.

In China Jan CPI reportedly rose 1% yoy (Dec +1.2%) while PPI fell 3.3% monthly (Dec -1.1%). The Jan Japanese consumer confidence index improved to 27.0 (Dec 26.7). In Europe, Dec French industrial production fell 1.8% (Nov -2.8%) as auto output declined 44.6% yoy in Italy industrial production dropped 2.5% generating a 14.3% yoy decline. The LME stocks dominated by al which saw total stocks pass the 2.9 million tonne mark and cu, the former inflow remains global while the latter is concentrated in Europe and Asia. Last week the Katanga province administration lifted a ban on the exports of cu concentrates imposed in Mch ’07. This should boost Zambian treatment plants such as First Quantum’s Bwana Mkubwa.

The whole market seems to trade in a tight range ahead of the US news with the base metals recovering most of the morning losses before 15:00. The Dec wholesale inventories fell 1.4% (Nov -0.9%) much more than the expected -0.8% showing the adjustments being made to falling sales of 3.6% (-7.3%). In prepared remarks the Treasury Sec said the financial system is working against recovery and that is the dangerous dynamic we need to change. Without credit economies cannot grow and right now, critical parts of the financial system are damaged. Inferring the administrations strategy will “cost money, involve risk and take time”. After the announcement the US equities tumbled taking the shine off the afternoon base metal rally. It remains to be seen what take the US market finally puts on all the news by its close.