Against the Grain

A good existing home sales figure in the US on Fri saw Asian markets playing catch up but one still gets the feeling there is more reticence in Asia as investors wait to see what moves the PBoC will take if any to slow the breakneck speed of the economy. In this environment we expect better economic data to support the markets with the wild card being a “China shock” (keeping in mind the 60^th anniversary of the People’s Republic of China is October 1). In the West with oil prices at a new post crash high expect them to act as significant drain on consumer disposable income, however unlike last year food prices have remained subdued. A good summary of the situation is coming from Dr Doom himself, Nouriel Roubini “The risk of a double –dip recession is rising”, FT Aug 24 (www.ft.com).

The Chinese Customs said Jul cu imports fell 23% to 292 kt from the Jne record level of 378 kt, the fall was offset by a 60% rise in cu scrap to 448 kt as higher prices send traders in search of value. The delayed reaction of the metal traders to news is hard to fathom this morning a 7% jump in pb was attributed to the closure of smelters in China associated with a poison scare reported on Aug 14; following a poison outbreak China’s Dongling Lead and Zinc Smelter in northwest Shaanxi closed 100 kt capacity plant. On Fri the pb / zn spread settled at below US$ 25 differential today it is over US$ 160, despite both metals being affected by the China plant shutdown. Either pb traders are very slow or there is something more to this rally.

In Europe the good numbers keep flowing as Euroland Jne industrial news orders rose 3.1% (May +1.8%) however still down a massive 25.1% yoy (-30.3%). As Hungary reduced official rates by 0.5% to 8%, Israel became the first country in the post recession era to increase rates by 0.25% to 0.75%.

The Jul Chicago Fed national activity index improved to -0.74 (Jne -1.8). With that out of the way it is “go with the flow”, as equities, US$ and oil interplay which turned out to be” running on the spot”, then just after 16:00 as the DJI reached a new daily high (+75) cu touched a daily low (6300). Then metals prices burst high cu rallying over US$ 100 in 20 minutes to a new daily high (6424) with DJI not moving & pb price above 2000. A US asset research group estimates commodity mutual funds have increased their assets by US$ 7 billion this year more than a tripling of yoy investment at US$ 89.6 billion (this excludes energy assets that separately rose US$ 2.54 billion to US$ 22.87 billion). Ahead is investor window dressing into the end of Aug, prices in a couple of the metals today look almost irrational since 07:00 this morning cu is up 16 having had a US$ 135 daily range in the last hour; al off 31; zn down 25; pb up 116; ni down 300 after a 650 overnight rally, with gold down 2.5, oil up 30 cents and US$ / € unchanged.

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