Against the Grain

When we left the office Thurs the DJI was a healthy 100 points up however this rally faded and by the NY close it was unchanged on the day. While the 16 European members of the € group agreed to put in place a bail out mechanism which includes input from the IMF, a clear policy victory for Germany. The market reaction to all of this, very little, with the DJI unchanged and US$ steady others sat on the sidelines and watched. At the start of the week we attended the UNCTAD Global Commodities Forum with much of it dominated by the great and the good of exchanges trying to hold the status quo against the threat of new regulation, expect this topic to grow over the course of this year.

The metals edged higher in Asia led by cu and ni having good Select volumes. The weekly Shanghai stocks saw cu decline 13,636 tonnes to 155,465; al rose 12,365 tonnes to 406,693 and zn jumped 20,738 tonnes to 244,191. In China the Lead-acid Battery Association expects battery output will rise 25% which could up pb demand by 20%, with recycling expected to increase by 50% to 1.5 million tonnes. The recent boom in battery bicycles and cars will in the coming years see the recycling share grow even faster. In the US pb recycling runs at over 80%. While the China Nonferrous Metal Industry Association estimates al scrap will rise 87% to 2.8 million tonnes by 2015. Routine daily LME stocks meant that on the week cu fell 6 kt; al declined 32 kt; zn rose 2 kt; pb up 1250 tonnes; ni down 1798 tonnes and sn increased 130 tonnes. In the pre market a weaker US$, need we say more. News that a South Korean naval vessel was sinking near North Korea saw gold back above US$ 1100.

The Feb Japanese CPI declined 1.1% yoy (Jan -1.3%), that is the twelve months in a row they have deflated. Into Europe the Mch French consumer confidence survey drifted to -34 (Feb -33).

In the US, Q4 GDP was wound back to 5.6% (5.9%). At 14:00 the final Mch Uni of Michigan consumer confidence was unchanged at 73.6; current conditions rose 82.4 (81.8); expectations declined 67.9 (68.4). On the international front the US and Russia agreed a new nuclear arms reduction treaty to be signed in Prague Apr 6. It replaces the 1991 Strategic Arms Reduction Treaty and reduces warheads by around 30% to 1550 each. The scrapping will add U3O8 supply, look at the chart on BBC website, http://news.bbc.co.uk/1/hi/world/europe/8589385.stm . Very quickly after this news the US$ and DJI were driving market direction. Over the week the most concerning move has been the rise in US Treasury yields, should this continue it could reflect investor concerns about the state of US finances, the move referred to by former Fed Chairman Greenspan as a “canary in the mine”.

Tepid sort of week cu up 63, al down 36, zn off 57, pb slipped 92, ni jumped 1120, sn dipped 100, gold down US$ 6 / oz, oil off US$ 0.7 / bbl, the DJI at time of writing up 133 points, US 10 year bond yields rose 0.19%, US$ / € stronger by 0.014 and Shanghai equities down 14 points.