Against the Grain

The direction of equities seem to be driving the metals, the DJI closed higher but below where it was at y/days LME close electing some early Asian selling and a cu low of 6240. Then Asian equities advanced and this put a bid tone into the markets.

The metals continue to be dominated by the strong advance in pb as it moved above 2100 in early London trading. The China story continues to grow as it is reported that analysts from state-owned research group Antaike say as much as 60% percent of the nation’s pb production capacity does not comply with official environmental standards. No real surprise and suspect the same is true for many other industries (how many stories have we heard about, food, chemicals etc. We have a contact who worked at a Chinese gold mine where arsenic leached into a stream flowing through the accommodation, production continued a pace) but can the government afford to act on all of then, what would be the consequences for the country’s growth profile. China al producer Chalco says the country’s smelters, traders and warehouses hold up to 600 kt of stock. The LME stocks were of no consequence. In recent times we have seen a sharp increase in physical metal being offered out from the Asian area India, Vietnam and Shanghai cu is being offered as low as US$ 35 / tonne FOB. Between pre market and the floor cu price led a downturn, as equities pulled back. In UK afternoon a Bloomberg article appeared quoting the China State Council web site saying the government will increase guidance of industries including steel, cement, coal, chemicals, plate glass and wind power equipment – seen as an attempt to curb overcapacity. The Baltic freight futures continued to correct touched a three month low.

In Asia Aug South Korean consumer confidence rose to 114, above 100 is optimism (Jul 109) with government spending and low interest rates the drivers. Japan saw Jul exports down 36.5% yoy (-35.7%) with China -26.5%, US 39.5% and Europe -45.8%, as a trading nation this seems to us nothing short of a disaster yet investors pushed the Nikkei higher. Finally, the H1N1 flu threat rode to rescue Singapore as Jul industrial production rose 12.4% yoy (-9.2%) the booster was pharmaceuticals up 139% (+20%) they are 20% of manufacturing, ex bio medicals fell 7.4%. Electronics declined 5.6% (-19.2%) they make up 26% manufacturing. While the Malaysian Q2 GDP declined 3.9% (Q1 -6.2%). Into Europe the Aug German Ifo business climate index 90.5 (Jul 87.3), current reading 86.1 (84.3) and expectations 95.0 (90.4) as with all recent confidence data the improvement is stacked into the “future”.

Overnight the weekly ABC / Washington Post consumer sentiment index improved to -45 (-46). The MBA weekly mortgage applications rose 7.5% (+5.6%) though easily anticipated by the fall in bond yields as usual the devil is in the detail the refinancing index +12.7% while the purchase index +1%. The Jul durable goods orders rose 4.9% (Jne -2.5%), however ex transportation up 0.8% (+1.1%) and inventories of durable goods fell 0.8%. Ahead of US oil stocks oil under pressure 71.25. Then at 15:00 Jul new home sales rose 9.3% to 433 k units (+9.1% to 395 k units). Finally the “hottest data on the street” weekly DoE oil stocks posted a small rise, after the big fall last week a rise was expected.