Against the Grain

Ahead of Aug option declaration late y/day cu and al cut through 6100 and 2000 respectively with a complete capitulation of the sellers. The concern about the recent metal price rise is its dependence on investors, the rise has been accompanied by such comments as investor demand, fund accumulation, technical buying and followed by reports of record monthly investments into index swaps, structured products, exchanged traded products then reports of month end investor “window dressing”, followed by new month fund money. What seems to be missing is underlying reports of fundamental demand.

No stopping the metals this morning despite little movement in the equities, oil, gold and US$ they powered ahead on their own is an impressive display of buyer domination. The LME stocks on balance continue to rise but as the material is mostly appearing in “dead areas” such as the US, another 13 k of zn into Detroit and NO (hear this is Canadian and US material that has been lying around off market for a while), they are not of any consequence. The LME is at present purely a price mechanism and no longer a supply substitute, consumers must take that on board. On the physical front as prices catapult higher we are seeing a deluge of material being offered out of the fast growing economies of China and India, every dollar increase sees more sellers. The power sensitive al rose to new year highs as Eskom South Africa faces a strike threat next week. Interestingly fundamental news is now having more bullish impact in the metals at these highs than a few hundred dollars ago.

In Europe a string of good UK data Jul Nationwide consumer confidence 60.0 (Jne 59.0), the Jul service PMI 53.2 (51.6) the only expanding country in Europe, Jne industrial production +0.5% (-0.7%) yoy -11.1% (-12%) and manufacturing output +0.4% (-0.6%) and yoy -11.7% (-12.7%). The Jul service PMI for other Europeans improved but still in contraction Italy 44.5 (42.3), France 45.5 (47.2), Germany 48.1 (45.2), Euroland 45.7 (44.7) and the Euroland composite index 47.0 (44.0). Again customers come up as the weak link Euroland Jne retail sales fell 0.2% against an anticipated rise (May revised lower to -0.5%) and yoy -2.4% (revised up to -3%).

In the US overnight the weekly ABC / Washington Post consumer confidence index slipped to -49 from -47. The next US data was supportive sending the metals to new daily highs. The Jul Challenger job cuts rose 31% to 97 k in the first seven months up 72% yoy while the ADP private sector jobs survey fell 371 k slightly more than expected (Jne 463 k). Around 14:00 cu bolted for 6200, ni cleared 20,000 in an impressive show of buying power as for a second day equities, oil, gold and US$ sit back and watch metals. The Jul non manufacturing PMI was 46.4 les than expected with general weakness across the sub groups (47.0) while Jne factory orders rose 0.4% more than expected (+1.2%) with durable goods revised to -2.2% from -2.5%. With other markets faltering al vaulted over 2100.