Against the Grain

What has fuelled the recent general market advance in the past fortnight? We suspect a general confirmation by Western central banks they will keep interest rates low into the foreseeable future (which could be defined as Q3) combined with an expectation that a broad recovery has gathered momentum. Therefore investors have a ready supply of cheap cash to chase opportunities but we suspect the time horizon will remain very short in case the landscape changes (such as occurred in early Feb when the trap door opened). What many call

The weakening US$ caught up with cu in Asian time, as the latter remained unchanged (y/days 7800 was the years high surpassing 7795 on Jan 07 before it slumped to 6225). The 40 year old annual iron ore contract appears to be a thing of the past as Japanese steelmakers agreed a quarterly contract price of US$ 110 / tonne with Vale and BHPBilliton, that is a 90% increase (we heard y/day spot iron ore was trading at US$ 160 / tonne). It is easier for the Japanese to accept this change as they have been buying al on that basis for some time. The routine of LME stocks was disrupted by a surprise jump in al (into NO) with pb having another rise (mostly Europe and US). On al we hear that financing deals entered into a year ago are rolling into a new deal where off warrant material must be put onto the LME for a period of time. In this environment no impact what so ever as investors seem be in command. Chile Feb cu output grew 3.8% to 395 kt. After y/days charge commodities struggled in the pre market as the US$ clawed its way back from early lows (€ 1.353). The awakening of the US saw prices quickly testing the highs.

In Asia, Japanese Feb unemployment steady at 4.9% as industrial production fell 0.9% (+2.7%), yoy +31.3% (+18.5%) and vehicle production yoy jumped 74.9% (+30.7%). In the UK Mch Nationwide house prices rose 0.7% (-0.8%), yoy +9% (+9.2%) as mortgage approvals hit a nine month low. Then the final Q4 UK GDP edged up to 0.4% (0.3%) and yoy -3.1% (-3.3%). Y/day Greece sold €5 billion, 7 year bond at 5.9% (325 basis points over equivalent German bunds) without much cover.

The US Jan Case-Shiller home price index 145.3 (145.9) with the composite 20 city reading rose 0.32% (+0.34%), yoy -0.7% (-3.1%). Then some up to date data the Mch Conference Board consumer confidence 52.5 (Feb 46.0). Better figures overall and with Mch nonfarm payrolls expected to rise by upwards of 190 k we had the unusual situation of the US$ and base metals strengthening (except pb) as the DJI gave up ground and gold fell.