Against the Grain

The strong performance Mon on the good manufacturing PMI data was supported by the JP Morgan global manufacturing PMI rising to 56.1 (Dec 55.0). The performances have been very good (UK the fastest pace in 14 years, US highest since ‘04) which most probably highlights the amount of production destruction in manufacturing during this downturn, only the strong have survived. The metals went out on their highs as US equities rose after the US 2011 budget was handed down. In Asia the up move petered out as metals came off and equities were mixed. We are in a period of macro uncertainty that after last week’s fall will keep investors guessing. See attached an interesting table from a US source of commodity prices.

A quiet start to London trading with metals trapped in narrow ranges before breaking higher after stocks. The LME stocks saw cu (out of Korea) and al (mostly Europe) lead the falls while zn rose (into US & Johore) with no real changes in the cancelled warrants. In Chile the environmental authority approved the plan to expand the mine processing capacity of Collahuasi cu (460 ktpa) by 20% to 170 kt / day. Throughout the pre market a weaker US$ and buying momentum boosted prices in light volume sucking in technical buyers and stop losses. At the Indaba in Cape Town a Barclays Capital analyst said Chinese cu imports will fall by 1 million tonnes this year with rising demand from other countries countering the decline.

In Asia, the Australian Reserve Bank left rates unchanged at 3.75% against a general perception of a rise. The country’s Dec business confidence slipped to 8 (19) and business conditions remained unchanged at 10. In Japan wages slumped in Dec 6.1% yoy (Nov -2.4%). In Europe Dec German retail sales rose 0.8% (-1.7%) and yoy unchanged at -2.5%. The Jan UK construction PMI was 48.6 (47.1) still below 50. The Dec Euroland PPI rose 0.1% (+0.2%) yoy -2.9% (-4.4%).

The only US data is the Dec NAR pending home sales index rose 1% at 96.6 (-16%) and yoy 10.9% (18.9%). After the data the metals followed the equities and fx markets around. Treasury Sec Geithner and Obama advisor Paul Volcker appeared before the Senate Banking Committee with nothing earth shattering.