Against the Grain

The Asian session was dominated by data from China, first Jul cu imports declined 15% mom to 406 kt but up a staggering 118% yoy, this was offset by a 60% rise in scrap imports. On the economic front trade continued to contract as the surplus widened in Jul to a US$ 10.6 billion surplus (Jne US$ 8.25 bill) as exports fell 23% yoy (-21.4%) and imports off 14.9% (-13.2%). Jul new bank loans plummeted to US$ 52 billion, less than a quarter of the Jne level. The urban fixed asset investment for the seven months to Jul rose 32.9% (Jne 33.6%). The Jul CPI was down 1.8% yoy the sixth consecutively monthly fall and event that would have been met with worry in other countries (-1.7%). The Jul industrial production was up 10.8% yoy (10.7%) and retail sales rose 15.2% yoy (+15.0%). As an analyst was quoted as saying “there is an element of fragility in the recovery”, we agree entirely too much hope is riding on a secretive, insecure Dragon and what happens if it runs out of puff. On the BBC y/day a US trade lawyer said that an I phone retailing at US$ 299 has “made in China” stamped on it yet the components come from 20 countries and China receives only US$ 4 / unit with most of the rest going to US design, marketing and sales. Makes you wonder where all the goods are going to create such an enormous trade surplus.

The South Korean and BoJ left rates unchanged at 2% and 0.1% respectively. In Japan Jul consumer confidence rose to 39.7 (38.1) while Australian Jul business confidence advanced to 10 (+4). In Europe German Jul CPI was flat (Jne -0.1%) yoy -0.5% while wholesales price index fell 0.5% (+0.9%) yoy -10.6%. Looking at other BRIC nations the Russian Q2 GDP contracted by 10.9% (Q1 -9.8%). See FT article by Mohamed El Enan “Insight: Decoupling versus recoupling” (www.ft.com).

The London session began very much as y/day closed with each of the market sectors watching who was going to break which direction and give the traders the “momentum” fix they need, at present the US seems to be the driver. The LME stocks were irrelevant.

The US provisional Q2 non farm productivity rose 6.4% above the 5.5% estimate (Q1 revised to +0.3% from +1.6%) as unit labour costs dropped 5.8% double expectations (Q1 revised to -2.7% from +3.0%) – some massive readjustments achieved by hitting the corporate consumer base. This gave the metals a little boot with them hitting new daily lows just after 14:30 as the US$ strengthened, DJI fell 40 points and oil lost over US$ 1.50. In Washington the Fed FOMC began a two day meeting with a press release after the London Wed close of business. The Jun wholesale inventories fell 1.7% more than the expected 0.9% (-1.2%) with sales rising 0.4% (+0.4%) putting the inventory to sales ratio at 1.26 (1.27). In the auto sector inventories fell 1.2% as sales jumped 4.5% on the cash for clunkers program, putting the ratio at 1.84 (1.94).