Against the Grain

Last week the Japanese Cabinet Office conceded China has overtaken Japan as the world’s second largest economy yet the roar of that growth is creating growing pains. Recently there has been a plethora of reports on growing labour unrest then last night the BBC World Service carried a news report about a 100 kilometer traffic jam on the Beijing to Inner Mongolia expressway about 200 km out of the capital caused by road works, accidents and coal trucks. So what you say, well it has been there for 9 days! For now Western markets are obsessed with M&A, with potash the in commodity.

The metals were on the defensive overnight as the Nikkei closed under 9000 for the first time since May ’09 and the yen hit a15 year high against the US$. Perhaps it is the lack of equity turnover but the VIX index remains comfortable in the mid 20’s  In China, Chalco the al producer reported a Q2 loss after increased power rates which accounts for a third of output costs and lower prices. The Group is responding by expanding into coal, iron ore, cu and rare earths. This links into urbanisation, in Spectator magazine article Doug Saunders promoting his book “Arrival City: How the Largest Migration in History is Reshaping Our World” argues that by 2025 60% of the world’s population will live in cities rising to 70% by 2050. This development will boost power demands in many areas where al smelters have congregated for cheap energy- China, ME and Southern Africa. In India Vedanta has had plans to develop a bauxite mine in Orissa rejected on environmental grounds. Midsession the financial markets were on the ropes- cu off 125, FTSE down 81, oil 72.3 and US$ / € below 1.260. The losses gathered pace into and then steadied after the 15:00 US data below, when the well established DJI surfing took over. The DJI was off 150 points after the figures then clawed its way back, as analysts predicted further Fed easing measures, gold vaulted higher. At the close cu is resting on near term support.

The German Q2 GDP was confirmed at 2.2% and yoy 4.1%, with a rise in exports offsetting a decline in domestic demand. The Jne Euroland industrial new orders rose 2.5% (May 3.8%), yoy 22.6% (23.0%). Over the Pond, Jne Canadian retail sales rose 0.1% (May revised to -0.4% from -0.2%), ex autos -0.5% (-0.3%). Then at 15:00 US Jul existing new home sales plummeted 27.2% to 3.83 million units double expectations (Jne revised to -7.1% from -5.1% at 5.26 mill units) and the Aug Richmond Fed manufacturing index declined to 11 better than anticipated (Jul 16).