Against the Grain

The general state of economic negativity really hits you listening to BBC radio; y/day second news story on the early bulletins was the DJI had fallen 3.4% to a 12 year low. After the Bernanke / Obama shows the DJI rallied 3.3% but this was unreported emphasis was on Jan Japanese export data that collapsed 45.7% yoy (Dec -35% yoy) and imports declined 31.5% taking the trade deficit to a record US$ 9.9 billion. The US market got support from Bernanke playing down bank nationalisation and Obama State of the Union address the re emphasised HOPE. Rest assured the press will not become positive till well after the recovery begins – good news is not news.

The weekly US ABC / Washington Post consumer confidence index was -48 (-49). The mood in metals has turned 180 degree since this time y/day when sellers probed the lows, now they are testing near term resistance with cu above the 10 dma at 3320. The LME stocks saw a rise in free stock of all the metals led by al however more interesting was a further rise in cu (12,100 Gwangyang 7400 and Rott 4300 cancelled now 6% of total) and zn warrants (cancelled to 7% Sing 2875 tonnes). The German final Q4 GDP was -2.1% unchanged from the previous estimate as yoy GDP was -1.7%. In Euroland as a whole the Jan EuroCOIN indicator of economic activity declined to -0.63% (Dec -0.21%). The UK Q4 GDP was revised to -1.9% the largest drop since Q2 ’91. The supra national European Bank of Reconstruction and Development (EBRD) established in ’91 suffered its first loss since the Russian Crisis of ’98 as its investments declined in Eastern Europe.

On the metals front it is an encouraging mix of buying and production cuts. The Chinese SRB purchased 100 k tonnes of zn (at US$ 1680) to add to the 59 kt it bought in Feb (which was at a higher price but smelters held back) and is expected to take another 100 kt in Mch / Apr. The buffer stock is reported to be close to buying 300 kt of al with another 400 kt by Jne. In Australia, Kagara has stopped processing ore at its Queensland cu / zn mines for five days after the tropical storms that swept the area. Supporting the recent cu warrant buying in Asia, which we believe has been in excess of 50 kt it is reported Japanese cu cathode shipments for Mch are sold out as local and Chinese demand picks up.

The metals confirmed their slavish fascination to the DJI quickly giving up ground as it opened down 50 points. The Jan existing home sales fell 5.3% to 4.49 million units more than expected meaning inventories are at 9.6 months supply (Dec +4.4% at 4.74 million units). The DJI did not seem to like the Obama speech or this number and was soon down over 150 points. It appears investors bought equities ahead of the Obama address and after Bernanke’s reassurances but saw nothing in the speech of substance. Like seeing a very nice car at the Detroit Motor Show however closer inspection shows nothing under the bonnet. Despite weaker equities the base metals had constructive closes near the top end of the range.

This entry was posted on Wednesday, February 25th, 2009 at 6:25 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.