Against the Grain

The Aug funds tap was turned fully open in Asia as cu jumped US$ 200 in heavy Select volume as investors continue to chase the elusive commodities Eldorado. The weakening US$ continues as investors unwind their “doomsday scenario” of late last year with the US$ index now at its Spt low of 78.8.

The Jul manufacturing PMI data continued to improve across the globe the official Chinese figure measuring large firms rose to 53.3 (Jne 53.2), the weakest rise of all those quoted here  while the private CLSA survey of smaller enterprises was 52.8 (51.8), Japan 50.4 (48.2) and India 55.3 (55.3). In Europe, Russia 48.4 (47.3), Italy 45.4 (42.7), France 48.1 (45.9), Germany 45.7 (40.9), Euroland 46.3(42.6) and the UK 50.8 (47.4) the best performance. The one worry in the present flow of good numbers for us remains the poor state of consumer demand this was highlighted by the flash Q2 US GDP number Fri (-1.0%) and today Jne German retail sales fell 1.8% (May -1.3%) and yoy -1.6% (-2.9%).

The metal prices keep up the forward momentum in Europe as funds money chased too few sellers, despite technical and fundamental signal of caution the flow continues it unstoppable move, while have no desire to stand in front of this tidal wave we continue to believe it is doing far more damage to the underlying economy than good and a reckoning will come in the shape of a “grey swan” event. As we have said before in the meantime sit back and enjoy the ride. The LME stocks saw zn up 15 kt that is 50 kt in a fortnight mostly into the US. Who cares?, you should the notion that LME stock is available for consumer use is a fallacy the domination of the commodities sector by financial traders has meant the traditional market has lost all control of warehouse material. Big deals between warehouses, traders and banks means LME stock is locked away and will only reappear if premiums rise significantly to entice these players to unwind high yielding financial transactions.

At 15:00 the US Jul manufacturing PMI was 46.5 (Jne 44.8) and Jne construction spending +0.3% (May -0.9%). These figures pushed cu to 6000 on further US$ weakening. In Brazil Jne industrial output rose 0.2% leaving it down 10.9% yoy. With full US Jul auto sales data later today Ford said Jul sales rose 2.3% the first monthly gain since Nov ’07. Behind the jump was the runaway success of the governments “cash for clunkers” scheme which was the US$ 1 billion incentive exhausted in 6 days. Congress is in the process of increasing the scheme by a further US$ 2 billion. In the fixed income arena the TED spread, the difference between what the banks and Treasury pay to borrow three month funds narrowed to below 30 basis points the first time since Mch ’07 having been at  434 basis pints in Oct ’08 when Lehman’s crashed.