Against the Grain

WARNING: the LME is closed Mon and its end of the month, you could see some big price moves as traders use the US to window dress our guess (9 out of 10) chance prices will be higher on that day, unless you have something like China doing a big monetary policy move or such like).

A recovery in US equities yesterday lit the fire under the metals as they posted strong gains in Asia as sellers stood back in light turnover. The focus is on Western equities as a 3% decline on Shanghai equities was overlooked. This west – east divide is perhaps best understood taking into account banking “liquidity”. In the west interest rates are near zero (and set to remain there) while central banks keep the market liquid. In the east China avoids tinkering with interest rates but there is growing worries that liquidity is / will be tightened. Should western central banks begin to tilt toward rate rises / liquidity tightening we suspects financial markets would shudder. The Japanese have elections this Sun and the Liberal Democratic Party that has been in power for 54 years is heading for a heavy defeat not helped by Jul unemployment rising to a post was high of 5.7% (Jne 5.4%), consumer spending fell 2% yoy (+0.2%) and CPI -2.2% yoy (-1.8%), ex food and energy -0.9% (-0.7%).

The weekly Shanghai metal stocks all rose cu by 4975 tonnes to 86,625 (since late Jul stocks are up 75%); al 21,287 tonnes to 219,650 (up 22%) and zn 2038 tonnes at 117,499 (+16%). The LME weekly changes saw cu rise 6 kt; al fell 19 kt; zn up 1 kt; pb increased 3 kt; ni up 4 kt and sn 153 tonnes, however in an environment of investor usage as the key driver of prices such moves mean very little. The pb market continues to hold centre stage with Western analysts bullish about the China smelter shutdowns while Asian traders have no worries believing most smelters will be soon (if not already) back on line.

In Europe UK Aug GfK consumer confidence was unchanged at -25. The UK Q2 GDP revised to -0.7% from -0.8% and yoy -5.5% (-5.6%) increased government spending offset falls in business and consumer outlays.  The Aug EU economic confidence index rose to 80.6 (Jul 76.0), business climate indicator -2.21 (-2.70), consumer confidence -22 (-23), industrial confidence -26 (-30) and service sector confidence -11 (-18).

The US Jul personal income was unchanged (Jne -1.3%), personal spending rose 0.2% (+0.4%) as savings slipped to 4.2% (4.5%). Then at 15:00 the final Aug Uni of Michigan consumer sentiment index was 65.7 (Jul 66.0), current reading 66.6 (70.5) and expectations 65.0 (69.2). The US Department of Energy has set aside US$ 300 million to boost the sales of energy efficient electrical household goods the complicating factor is it will be done at a state level and they have till Oct 15 to submit rebate plans. After that it was back to equity surfing, though traders were reluctant to follow the sell side to aggressively on a Fri afternoon at the month end.