Against the Grain

The US administration’s bank bail out plan spooked their markets overnight sending the DJI tumbling over 4%, US 10 year bond yields fell back from 3% and gold rose. The reaction came because of the lack of detail, this administration has to learn that during a campaign you can promise “hope” but when your in the White House during troubled times then the country wants well developed solutions. From our reading of the situation the Obama plan is to say “trust us we are your government” but markets do not play that way.

The weekly US ABC / Washington Post consumer sentiment index was -53 from previous -52. In China Jan exports fell 17.5% yoy to a 13 year low but the trade surplus improved as import fell 43% yoy helped significantly by lower raw material costs. The numbers are impacted by the Chine NY at month end. In the breakdown exports to the US fell 9.8% and Europe 17.4% as electronic dipped 21% and steel 32.5%. The Chinese General Administration of Customs said Jan cu imports of unwrought and semi finished cu products fell 18.8% to 232 kt from Dec. This was against the expectations of the markets that expected imports to remain strong. Base metals saw good turnover in Asia led by cu with prices easing back after the good gains in that region recently. In Europe German Jan CPI fell 0.5% rising 0.9% yoy (Dec +0.3% and +1.1% respectively) the average ’08 CPI was +2.6%. The LME stocks dominated by inflows of al, ni and cu, however amongst this there is a smattering of off take. The metal shake out appears to have sparked some good Asian trade enquiries helping to support prices.

Metal prices continued trading in very tight ranges either side of the London opening levels. The Dec US trade balance was a deficit of US$ 39.93 billion higher than expected (Nov US$ 41.58 billion). The impressive run in gold continued as it broke 940 (lifting the base metals), however a longer term risk is gold is rising and US government bond yields falling as investors lose confidence in the new administrations ability to handle the situation.