Against the Grain

Well it turned out Asia was the calm before the next storm y/day as a poor Feb German Ifo business climate and US consumer sentiment saw the so called “risk reduction” trade - sell everything and buy US$. Looking at Asia last night and calm descended again ahead of the next storm, possibly Bernanke’s evidence to Congress this afternoon. Bernanke’s economic outlook to the House Committee (the first of two) painted the picture of a slow and painful economic recovery with growth roughly 3 to 3.5% in ’10 and 3.5 to 4.5% in ’11. Which to translate means US rates are likely to remain low for longer so traders tentatively loaded some risk on board. Then it became a Newton, for every action there is an opposite and equal reaction, US$ weakened and other instruments strengthened.

A very quiet start to London trading as the US$ / € rate was very steady just above 1.35. The LME stocks again dominated by falls with only pb rising. Sometime ago an old hand in the al business cautioned us to beware with al saying large stocks can disappear very quickly are we beginning to see that happen. With al and ni they seem to be metals that are very concentrated on the production side and can trade weird and wonderful ways. In Jan Chinese cu imports declined 19% to 197 kt, though up 9% yoy, while concentrates rose to 600 kt and scrap 337 kt. We believe the best way to look at Chinese cu imports is as a package as they daily juggle to get the best price. Despite a steady US$ and stronger European equities (suspect currency driven) the metals and other commodities remained under pressure with cu touching a 7020 low.

In Asia further news from China with a report banking regulators have told commercial lenders to restrict new loans to the financing arms of local governments and in HK plans were announced to increase taxes on luxury home purchases. Feb South Korean consumer confidence index slipped to 111 (113). The World Trade Organisation said world trade fell 12% last year the largest drop since 1945. In Europe the German Q4 GDP revision remained unchanged at 0%, while the Mch GfK consumer confidence survey slipped to 3.2 (3.3). Some good news Dec Euroland industrial new orders rose 0.8% against ban expected fall with the lower currency helping exports and yoy +9.5% (-0.6%). The South African energy regulator has approved a 25% increase in electricity rates for the next three years starting Apr 1.

In the US overnight the weekly consumer sentiment survey slipped further to -50 (-49). The weekly MBA mortgage applications fell 8.5% (-2.1%) with purchasing index off 7.3% and refinancing down 8.9%. At 15:00 Jan new home sales dropped 11.2% to 309 k units against an anticipated rise and now the lowest level on record (-3.9% at 348 k units).