Against the Grain

What a difference a month makes with the rise in Jan Chinese manufacturing PMI to 57.4 (Dec 56.1), a reason for investors to continue selling metals. This was backed up by strong numbers elsewhere India 57.6 (55.6) Russia over the line at 50.8, in Europe Italy 51.7 (50.8); France 55.4 (54.7); Germany 53.7 (53.4); Euroland 52.4 (52.0) and UK 56.7 (54.6) this is a rate not seen in 16 years can this really be correct? Brazil 57.8 (55.8). In the afternoon the US came in at a strong 58.4 (55.9). The last ten days has seen a significant mood change as investors dump hard asset strategies as ominous signs mount that authorities could tighten monetary policy sooner than anticipated signalling the low interest rate rally of the past year could be over. The jury is still out but this week’s Jan economic data seems to mounting up as a make or break moment.

The data saw metal prices steady at best in London trading. The LME stocks saw cu keep rising with ni. The interesting one is pb where cancelled warrants have rocked in the last week to 10% of total stock on warrant with them occurring mostly in the deepest rustbelt locations of the US (today Detroit 4350) so suspect an investor is playing games and creating dead stock. Citigroup reported that China’s Chalco expects the country’s al demand to grow 23% yoy in ’10 to 17 million tonnes, in a price range of US$ 2200 to 2600. It is reported from Canada that Xstrata has reached a tentative wage agreement with its unions at the Sudbury ni operations.

In Japan Jan vehicle sales rose 36.8% to 238 k units (Dec +36.5%) with their scrappage scheme extended to Spt ’10 which is for car over 13 years old exchanged for new ones.

In the US Mr Bernanke has been reappointed Chairman of the Federal Reserve after the politicians made their point. The Dec personal income rose 0.4% (+0.4%) and personal spending up 0.2% (+0.5%). Metals higher as the DJI opens higher ahead of more data. The Dec construction spending declined 1.2% (-0.6%). Later the government unveiled its 2011 budget which should project a record deficit of US$ 1.6 trillion. In US time metals seemed to benefit from new month asset allocation buying and squeezing a few shorts out.

China looms over the world economy like a monolithic dragon and with its unrelenting rise is coming some resistance from the mere mortals. While last year market commentators and markets fawned all of its stellar performance and insatiable appetite for raw materials there has been a significant change in this chorus since the end of last year and especially with Copenhagen, the Google case and a comment by a hedge fund manager that he saw China as Dubai x 1000 causing a flurry of media comments for and against. One article that brought this home to us was an essay in Time Magazine Feb 1 edition by James McGregor, “The China Fix”, (http://www.time.com/time/magazine/article/0,9171,1955426,00.html).

Asia was quiet following another day of savage metal declines, London began on a tentative note missing the swagger of investor buying that we have seen over the past six months. The weekly Shanghai metal stocks saw cu rise 3902 tonnes to 100,210; al up 5481 tonnes at 333,878 and zn down 240 tonnes at 222,660. The LME stocks dominated by a big al decline and rise in cu, pb and ni. On the week al dropped 24 kt; the rest rose cu7 kt; zn 5 kt; pb 4 kt; ni 2.5 kt and sn 630 tonnes respectively.

In Asia, Japan reported Jan manufacturing PMI at 52.5 (Dec 53.8) and Dec unemployment at 5.1% (5.2%). The Indian central bank increased bank reserve requirements to 5.75% (5%). The Jan UK GfK consumer confidence survey was -17 (Dec -19) and Dec Euroland unemployment rose to 10% (9.9%).

An afternoon of blistering US data with the advanced Q4 GDP coming in at 5.7% above the expected 4.7% (Q3 2.2%), the majority of this was inventory building accounting for 3.4%. The final annual result is ‘09 GDP fell 2.4%, the worst result since 1946. Then at 15:00 the Chicago Jan PMI was 61.5 well above expectations (Dec 58.7) and the final Jan Uni of Michigan consumer confidence was 74.4 (72.8). The equities revelled in them, the US$ rose and metals fell away. At the end of the week have we seen a turning point in investor focus or just a time of reflection?