Against the Grain

The beat goes on, stronger equities and weaker US$ boosted commodities back to levels before the China rate move fright sent them tumbling three weeks ago. The general market move reminds us of the initial reaction to the breaking of the US sub prime story in 2007. There was a falter then denial as amazingly the investors believed the reassurances of the authorities (central bankers and governments – in the case of Greece deliberately deceived their people and partners. Do you think that investment banks having found a money spinner and only sold it to one client, some call it the “cockroach” theory) it is now a matter of time before the reality that things are not fixed sets in. Back then cu was around 7000 but went on to 9000+ before reality hit.

The US$ weakened quickly on the London open and commodities moved higher with cu breaking above 7200 (since Fri close cu is up US$ 400; zn and pb US$ 200 with ni jumping US$ 2000). The LME stocks dominated by a dump of zn in US warehouses (suspect a trader’s reaction to the present tight spreads) and more al into US and Port Kalang, Malaysia (10 kt each) with no cancelled warrants. The Chilean mining minister today expressed concerns about the rising trend in cu inventories and possible price implications. After a rampant start a US$ recovery reined in the advances. It is reported the ILZSG judged the zn market in a 445 kt surplus at the end of ’09 as the slump in usage outstripped the decline in production and in pb a 77 kt surplus. The US housing data lifted the metals out of their usual mid session doldrums however the US$ strengthening to € 1.37 was a drag (when cu was last around 7200 the US$ / € was above 1.40, cu tends to follow the US$ on a daily, mostly am, basis without longer term correlation). In the afternoon the umbilical cord is attached to the DJI, it opened up and the afternoon sport of equity surfing resumed. Sods law after writing this a strong rally in the US$ to € 1.36 saw the metals switch horses to currency skating, could not ignore the move and cu teasing near term support.

The Chinese NY holiday keeps Asia quiet with some countries returning to the coal face today. The Dec Japanese tertiary industry index fell 0.9% (Nov -0.1%). The UK Jan jobless claims disappointed rising 23.5 k against an expected fall (-9.6%) the Dec quarter unemployment rate was unchanged at 7.8%. Yesterday we highlighted the recent growth of political standoffs in African nations today there are several articles about moves by countries to increase resource taxes, in particular Australia and South Africa.

Overnight in the US the Feb NAHB housing index improved to 17 (15) and the weekly ABC consumer sentiment index slipped to -49 (-48). A torrent of data today the weekly MBA mortgage applications declined 2.1% (-1.2%). The Jan housing starts rose ..2.8% at 591 k units (revised to -0.7% from-4% or 575 k units), building permits fell 4.9% at 621 k units (+10.9% at 653 k units). The Jan import price index up 1.4% (Dec +0.2%), yoy +11.5% (+8.6%) on the weaker US$. Then at 14:15 Jan industrial production rose 0.9% (+0.7%) and capacity utilisation improved to 72.6% (71.9%). After the close the minutes of the Jan Fed FOMC will be released.