Against the Grain

Metals outperformed other markets hopping on the only carriage moving forward in Asian time, a weaker US$ as equities, oil and gold remained steady. This followed on from y/days action. Shanghai is now out for a week that brings us to a warning with one of the exchanges out big movements can occurs and as Shanghai has capped prices recently with the arbitrage the path of least resistance is up.

In Asia there was some limited support on the economic data side; the Spt Chinese HSBC manufacturing PMI was 55.0 (Aug 55.1), was the CLSA survey that tracks medium to small businesses. In Japan the Spt manufacturing PMI 54.5 (53.6), Aug industrial production rose 1.8% (+2.1%) yoy -18.7% (-22.7%), vehicle production -25.9% yoy (-31.9%), construction orders -25.2% yoy (-42.8%), housing starts -38.3% yoy (-32.1%) and labour cash earnings -3.1% yoy (-5.6%). In Australia Aug retail sales rose 0.9% more than expected (-0.9%) as NZ Spt business confidence jumped to 49.1 (34.2).

In China it is reported the State Council has set a ban on new al smelters for the next three years and curb capacity at inefficient smelters by 800 kt in the next year (Chinese total output is around 18 mtpa or 45% of world production). This further highlights the growing problem of excess capacity in base industries following on from steel and in the future ni, zn and pb. The problem will be making the provinces enforce the cuts. With Shanghai weekly stocks were reported cu declined 1970 tonnes to 96,719; al fell 2527 tonnes to 227,261 and zn off 2724 tonnes at 109,200. This was offset by LME stocks rises across the board except sn. It is reported that Codelco has set its ’10 European cu premium at US$ 80 cif over LME cash price unchanged from ’09. In the morning session other markets began to catch up the metals lead. The Pacific has been ringed by earthquakes first Samoa then Singapore and Indonesia, the on the island of Sumatra but away from INALUM’s location.

In Europe the Spt UK GfK consumer confidence survey rose strongly to -16 (-25). The Spt Euroland CPI fell 0.3% yoy the fourth monthly fall (Aug -0.2%). The Spt German unemployment rate 8.2% better than expected (8.3%). The German VDMA reported Aug plant and machinery orders down 43% yoy (this accounts for around 20% of country’s manufacturing).

The US has a good flow of data so the 70 / 30 rule applies. The weekly ABC consumer sentiment index was steady at -46. The weekly MBA mortgage applications fell 2.8% (+12.8%) worryingly the purchase index was -6.2% and refinancing -0.8%. The Spt ADP private employment survey saw 254 k more losses than expected (-298 k). The final Q2 US GDP improved to -0.7%. The Spt Chicago manufacturing PMI 46.1 call it a shocker (50.0). This immediately took the shine off the equities however metals, gold and oil remain well supported by investor interest. Things where capped off by DoE oil data while crude stocks rose the gasoline fell so crude rallied. All this got the markets prices back to about where they were this time last week. Now we look ahead to a rush of new data and the prospect of new funds as Oct and Q4 begin.