Against the Grain

Some metals have independent strength at the start of the year cu was US$ 7380 / tonne, ni 18665 (al 2240, zn 2594 and pb 2430 have fared less well), gold US$ 1103 / oz and oil US$ 79,4 / bbl with the US$ / € at 1.438. What is clear is the it is not the level of the US$ to the metals but more the daily direction, so relationship not valuation. This highlights a more discerning investor who is trying to pick specific metal winners. We believe that cu and ni are out of kilter with economic reality but time will tell. Then Greece dominated the landscape as it announces further tax and spending cuts of US$ 6.0 billion to stabilise the country’s finances and the international markets. As 2010 rolls out many other European nations will take the same steps, so till the next hiccup the bulls rule.

For a second day overnight Select trading put a halt to European / US metal rallies in heavy cu and an volume (the exception was ni that added to its US$ 1000 / tonne gains y/day). While the US$ lost some ground y/day and overnight the rally seems to have been inspired by renewed investor interest in hard assets in the present macro outlook. From the AZA conference in the US a Brook Hunt analyst cautioned if smelters do not restrain production the present 1 million tonne refined zn surplus at the end of ’09 could double by the end of ’10 and the zn price could fall to a US$ 1800 / 1600 range. As he is quoted saying “Whether we like it or not, China is the most major force in the world of zn and what they do “that’s unanswerable question”. The LME stocks saw more falls (esp. Al & ni) than gains so supportive. The cu cancelled warrants rose 6175 tonnes in Rott which we suspect was a precautionary after Chile. This takes cu and al cancelled warrants to 7% of total stock and pb at 8% which occurred about a month ago in the US but since then nothing has moved. Another metal research unit CRU says the ni deficit maybe 20 kt this year after a 45 kt surplus last. Again the US$ seems to be driving the metals twists and turns through the morning and into the opening of US equities. Despite the Chilean cu industry escaping any major damage fund buying pushed cu above 7600 and over the Mon high.

In Asia South Korean Jan industrial production was unchanged (Dec +2.4%) yoy +36.9% (34.3%). The Australian Q4 GDP rose 0.9% (Q3 +0.3%) yoy +2.7% (+0.9%). The UK Nationwide Feb consumer confidence index jumped to 80 (74) wonder if weather had anything to do with this. Some heavy European data the Feb service PMI in Italy 50.8 (50.9), France 54.6 (54.7), Germany 51.9 (51.7), Euroland 51.8 (52.0), Euroland composite index 53.7 (53.7) and UK service PMI 58.4 (54.5). On Jan retail sales German flat (+0.8%) yoy-3.4% (-2.5%) and Euroland fell 0.3% (revised to +0.5% from 0%) and yoy -1.3% (-0.5%).

Overnight the US Feb total vehicle sales fell 4.2% to 10.36 million units annualised (Dec 10.82 mill units) and the weekly ABC consumer sentiment survey improved to -49 (-50). The weekly MBA mortgage data jumped 14.6% (-8.5%) as bond yields pulled back and the start of Feb employment data the Challenger job cuts fell 77.4% yoy (Jan -70.4%) as you would expect as the economy pulls out of recession. Then the Feb ADP private employment fell 20 k (Jan -22 k). At 15.00 the Feb non manufacturing PMI rose 53.0 (50.5). After the close the Fed releases its latest Beige Book ahead of the next FOMC meeting Mch 16.