Against the Grain

The US$ in 2H08 became the proxy for risk, despite being the core currency involved in the financial meltdown, as things got worse investors rushed to the currency deemed the world’s “reserve currency”. After the central bank / government rescue investors came out of their caves and as their risk appetite grew so they sold their US$ and invested in other instruments. This has created a situation where as the US economy begins to turn the corner the good news spurs investors to sell more US$ and invest in areas they believe will have better returns. So come Jul non farm payrolls Fri whether the figure is good or bad the US$ is likely to ease, commodities advance and equities rally. What changes this circle – an event that suddenly sends investors scurrying back to their caves or “risk stupid”. Therefore authorities must tread carefully to avoid any sudden event that unravels the present mood. Looking ahead it is quite possible that a more robust US recovery sees investors swing back into the US$ in which case late 09 / 10 could see the world economy expand without a significant rise in commodity prices as a stronger US$ counterbalances demand, now that would be good news for consumers.

In Asia with most of the financial instruments relatively steady cu still managed a US$ 150 range in reasonable volume keeping up it reputation for being the most volatile kid on the block. In Australia the RBA left rates unchanged as another consumer disappointment cropped up, Jne retail sales fell 1.4% (May +1.0%), the consumer accounts for about 25% of the Australian GDP. The Jne Euroland PPI rose 0.3% (May -0.2%) and yoy declined 6.6% (-5.8%). On the equities front the Swiss bank UBS reported a third consecutive quarterly loss and were charged by analysts at RBS of “not capitalising on the free lunch in capital markets”.

They are pretty irrelevant in the present circumstances but they are published daily, LME stocks saw another day of increases with zn again to the fore as it continues to pour into the “rust bowl of the US”, Detroit. A quick look at stocks shows how well producers and traders have locked up material in the US, roughly 72% of cu, 42% al, 60% zn and 69% of pb contrasted that with 4% of cu, 23% al, 25% zn and no pb in Asian locations were the growth is. The fundamental focus in zn is on Doe Run again as it tries to fight off bankruptcy at its Peruvian operations. This is seeing more concentrates sold overseas to other smelters. No surprise, Xstrata says Glencore, (their largest shareholder 34%) is very supportive of their bid for Anglo, they already market or have a say in Xstrata non ferrous metal marketing and Anglo’s Namibian zn output (150 kt / pa).

Last night US light vehicle sales declined 12.2% yoy (Jun -27.7%) at 998 k units against 1.136 million in Jul ’08, of the big three Ford Jul sales rose 2.4% yoy, GM down 19.4% and Chrysler -9.4%. The oil price has been rising on expected increased demand however schemes like the US “cash for clunkers” could reduce it as old less fuel efficient cars are replaced by newer more efficient and greener vehicles. The Jun US personal income fell 1.3% taking account of the government stimulus cheques in May (+1.3%), spending rose 0.4% (+0.1%) as they struggled with higher prices and this impacted on savings at 4.6% (6.2%). The commodities turned on a sixpence recovering the am losses in seconds. At 15:00 Jun pending home sales index rose 3.6% to 94.6 (+0.1%).