Against the Grain

Having flagged it last week the Fed acted after the NY close by raising the discount rate 0.25% to 0.75%, this is the rate banks have to pay to get emergency loans from the Fed (not an upfront rate but a signal). It was enough to take the edge off metals as the US$ strengthened. Mon sees the return of our second major issue for the world economy this year, China. Earlier this week we noted the rising political rumblings in Africa late yesterday the thing that frightens the political elite there the most occurred, a COUP, this time Niger the sixth largest producer of U3o8. The country had already been suspended by the Economic Community of West Africa (ECOWAS) in Oct because its then President had decided against the constitution to rule for life.

Today the metals markets will absorb the Fed move however, we suspect it will be a setback in a steadily rising but nervous market. The FT had an interesting article on algorithm high frequency trading (HTF -machine rather than human generated activity) in it they estimate the estimate the percentage of asset classes traded by HTF firms, equities 80%+, futures 65%, options 58%, bonds 35% and currencies 25% (Markets: Ghosts in the machine on www.ft.com). In Australia, Xstrata has been asked to explain what action it will take to stop excessive pb emissions after a breach of air quality limits in Mt Isa, Qld. The LME saw the al stocks begin falling again on cancelled warrants al up 12 k with Rott accounting for 10 kt and zn 5 kt in Asia. On the week cu rose 7 kt; al jumped 43 kt; zn rose 41 kt; pb up 1 kt; ni down 2 kt and sn off 555 tonnes. The kneejerk selling quickly dried up and a solid recovery began as was to be expected rate is technical and if anything the move a bullish sign. The US opened higher confirming the suspicion this is a setback in a steadily rising but nervous market. At 16:15 cu was at 7380 back where it started the year. Finally who wants to be short with China back Mon?

The Dec Japanese all industry activity index dipped 0.3% (+0.2%). In Europe the German Jan PPI rose 0.8% (-0.1%) yoy -3.4% (-5.2%), the Feb French business confidence indicator was unchanged at 91 then preliminary Feb PMI data highlighted strong manufacturing and struggling services, France manufacturing 54.7 (Jan 55.4) and services 54.7 (56.3); Germany manufacturing 57.1 (53.7), services 51.7 (52.2) and Euroland manufacturing 54.1 (52.4), services 52.0 (52.5) and composite unchanged 53.7. In the UK Jan retail sales slumped 1.8% (+0.3%) yoy +0.9% (+2.1%).

In North America Canadian Dec retail sales rose 0.4% (Nov -0.3%) and Jan leading indicators up 0.9% (+1.5%). The US Jan CPI +0.2% (+0.2%) yoy +2.6% (+2.7%) and ex food and energy -0.1% the first fall since 1982 (+0.1%), yoy +1.5% (+1.8%). Y/day PPI was above expectations and the metals rallied hard today CPI is under estimates and the metals rally, it seem everything is good for metals.