Against the Grain

Again a “bear trap” slammed shut y/day after a number of non metal events boosted the other sectors oil, €, gold and equities but metals followed without the same “oomph” of recent times but certainly reinforced the feeling the bulls are the dominant beast in the arena proving it is very hard work to push prices lower but they snap back sharply. This morning the markets seem to have a “what do we do now” look about them, perhaps oil’s direction being the key.

In Asia equities recovered following the DJI as Shanghai posted a 4.5% gain slowing the momentum of the recent declines. Taiwan Q2 GDP was -7.5% (Q1 -10.1%). The South Korean Public Procurement Service said it will pause its al stockpiling programme in the near term as the metal’s price is too high. It has been reported in trade press that Chinese zn TC rose this week by US$ 20 / tonne to around US$ 175 / tonne. In China another outbreak of pb poisoning has seen at an unlicensed manganese smelter in Hunan province. The LME stocks were of no consequence.  The Rio Tinto H1 results showed net earnings fell 65% reflecting the yoy change in commodity prices. Their chief economist gave this good summation of their markets “But given the role of speculation in driving markets and anaemic OECD demand, it seems prudent to exercise some caution about the scale of the recent rally in some prices. Risks during 2010 arise from a range of sources, including: · Any deceleration in demand once economy-wide inventory rebuilding slows; · The possibility that any recent run up in physical commodity stocks could be placed back on the market; · An inevitable reduction in the pace of growth in government economic stimulus; · The likelihood that consumer spending – especially in OECD economies - will remain constrained for an extended period on concerns about high unemployment and the need to rebuild wealth following recent asset price deflation; and · The likelihood that supply and capacity growth will be encouraged by recent price and credit market improvements. · Risks to the global financial system appear to have abated; but the possibility of further serious shocks with negative consequences for overall economic growth cannot be entirely discounted” (www.riotinto.com).

The customer is well in the UK as Jul retail sales rose 0.4% (Jne +1.3%) as expected lifting yoy sales by 3.3% yoy (3.1%). Contrast this with the US, see the article from the Wall street Journal Aug 19 edition “Reluctant Shoppers Hold Back Recovery” (www.wsj.com). In the worst result on record in Jul the UK public sector borrowed £ 8 billion as corporate tax receipts tumbled and welfare costs jumped.

In the US the weekly initial jobless claims rose 15 k to 576 k. The DJI gave back all its pre market gains as investors are now expecting a big drop in this data soon, it opened around unchanged however oil remains the driver. Then at 15:00 the Jul Conference Board leading economic indicators index rose 0.6% to 101.6, coincident index was flat at 99.7 and lagging declined 0.3% to 110.8. And the Aug Philadelphia Fed index into positive territory 4.2 against an expected unchanged and improvements among all sub sections (-2.0). Despite a positive DJI, higher oil and slightly weaker US$ the metals struggled losing ground on the day – an unusual pattern.