Against the Grain

The fragility and herd mentality of investors has been fully exposed over the past ten day as they realised they had been lulled into a false sense of security and 2010 is not going to be a repeat of the “easy money” of 2009. The next shock has been they were all holding the same position and this had correlated all the markets. Interestingly in the recent general retreat the 10 year US bond yield has been as steady as a rock around 3.60%, so far no frights about its finances.

The metal patient had a quiet night but the spasms still generated nearly 4000 lots of cu turnover in a tight range. The volatility is cu seems to be drawing in every gun trader as volume booms. The weekly Shanghai stocks cu jumped 13,092 tonnes to 114,302; al up 21,373 tonnes at 355,253 and zn unchanged at 222,660 tonnes. This sparked renewed selling of the sector. More evidence the Chinese are finding investment in Africa as problematic as others as the Chinese-owned NFC Africa has suspended at least 200 miners at Chambishi cu mine (150 ktpa) in Zambia accusing them of sabotaging underground operations. The LME stocks headed by al that saw material continue to move out, on the week it fell 24 kt; cu rose 100 tonnes; zn up 3 kt; pb put in 1 kt; ni rose 2.5 kt and sn down 470 tonnes. Incredibly nervous markets with 9,000 lots trade cu traded 6300 then gapped to 6286 ahead of US data.

In Asia the Dec Japanese leading index improved to 94.0 (90.7) and coincident index 97.6 (96.0). The UK Jan input PPI rose 2% (Dec +0.6%) yoy 8.4% (7.4%) while output PPI increased 0.4% (+0.5%) yoy 3.8% (3.5%). Then Dec German industrial production declined 2.6% (+0.7%) yoy -7.1% (-8.0%).

In the America’s Jan Canadian unemployment was 8.3% (8.5%) as employment rose 43 k. The US Jan non farm payrolls fell 20k (Dec revised to -150 k from -85 k, while Nov revised to +64 k from +4 k) on the plus side manufacturing employment grew by 11 k the first rise since 2006 and service producing jobs up 40 k, loses occurred in construction and government. The unemployment rate fell to 9.7% (10.0%). The average hours worked 33.3 (33.2). After this it became a session of cagey trading with each market nervously watching the other, equities, oil, US$ and metals.

Well cu was an eye opener y/day (and today) with over half the daily volume occurred between 12:30 and 15:00 on apparent fund liquidation. Since it touched its high of US$ 7796 on Jan 07 it has declined over 17%. It will be interesting to see how the market unfold, for some time fundamental analysts have been warning about oversupply but this has been emasculated by the start of year gallop by funds into commodities. This unwavering faith has been questioned by a swing in the interest rate pendulum from zero to rising. On a broader front the US fired another shot across China’s bow with Obama calling for them to abide by the spirit as well as the letter of  international economic policy. Last night it was basically “hey fellas your currency is undervalued”. Building on this theme see attached article in The Times, 04/02, by Anatole Kaletsky, “We need a new capitalism to take on China” (http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article7014090.ece).

Another high volume Asian session with cu to the fore in a tight range, talk of Chinese buying at these lower levels. Interestingly London took it off the highs and spent the pre market locked in a tight range around US$ 6600. The LME stocks saw declines dominated by al (28 k warrants were cancelled in Baltimore as we get the usual movement into dead stock ahead of the mid month replenishment) and cu with a rise in ni (into Rott and cancelled up). Dow Jones reports Russian rolled steel consumption fell 22% in ’09. On the demand front Airbus (they expect new orders of between 250 / 300 planes against 1,458 in ’07) and Boeing expect the orders for new aircrafts to remain depressed out to 2112. On the cu front the steep price fall will impact on provisional pricing if it continues.

In Asia, interestingly even the strong economies are seeing slow final demand Australian Dec retail sales fell 0.7% (Nov +1.5%) the hike in official rates were blamed while Dec building approvals rose 2.2% (10.4%). Q4 NZ unemployment rose to 7.3% (Q3 6.5%). After the down grading of Greece investors attention has turned to some of the other PIIGS (like wild dogs on the Africa veldt sensing a weak member of the herd), Spain and Portugal and Eastern countries like Hungary as doubts about government finance spread. On the data front Jan UK new car registrations stood at 145,479 up 29.8% yoy (Dec 38.9%) with the scrappage scheme accounting for 20%. The Dec German factory orders declined 2.3% (+2.7%) yoy +8.4% (+4.5%). The BoE left rates unchanged (0.5%) and QE in place as the ECB 1%.

The US weekly jobless claims 480 k (472 k). The Q4 preliminary non farm productivity jumped 6.2% (Q3 8.1%) as unit labour costs fell 4.4% (Q3 -1.5%). At 15:00 Dec factory orders rose 1 % (1.1%) a better than expected result that steadied markets under selling pressure. In Canada the Jan Ivey PMI bounced back 50.8 – just (48.4). As the afternoon session wore on the selling pressure kept building and the cry went “ABANDON SHIP!”