Against the Grain

The markets came in on the front foot after President Obama in his address to the nation emphasised a focus on domestic economic recovery. On the whole the August manufacturing PMI data was supportive revealing steady sector growth – Australia 51.7 (Jul 54.4); the official Chinese figure representing the SOE sector 51.7 (51.2) and HSBC SME sector 51.9 (49.4); Russia 52.9 (52.7); Indian 57.2 (57.6); Italy 52.8 (54.4); France 55.1 (53.9); Germany unchanged 58.2; Euroland 55.1 (56.7); UK 54.3 (56.9) and finally the US 56.3 above anticipation (Jul 55.5).

The metals outperformed in Asian time, with cu up US$ 100, there seems to be a million reasons to buy but very few to sell. Late last week the FT Lex had a very bullish article on cu that has pinned its colours to gold, helped by the currency markets and ignoring the equities. In Aug cu rose 0.5%, gold up 5.3% with oil down 8.5% and al off 6%, so fundamentals rule. The Japanese second largest cu smelter Sumitomo Metal Mining predicts concentrate feed will be in tight supply for the next 5 years and already producing at a reduced rate (404 kt in ’10 from 450 kt in ’09). The large mines are not producing to capacity or have had ongoing technical and mechanical problems. The LME inventories fell dominated by al the exception ni, it is becoming clear the LME warrant premiums are above those offered by producers and traders especially in al with reports of primary offers from China and zn. No surprise you make more in financing / storage than moving. The US Department of Commerce has determined Chinese al extrusion imports are being subsidised at a significant rate and proposed countervailing duties. The morning session saw metals remain firm as all the tea leaves were favourable, stronger equities, weaker US$, fund buying et al. The market ignored the poor ADP employment data below before taking onboard the good PMI, DJI jumped 200 points.

As Australia struggles to form a government like other nations after the recent election (UK, Belgium, Iraq) its Q2 GDP rose 1.2% (Q10.7%) yoy 3.3% (2.6%). In Japan Aug vehicle sales rose 46.7% yoy (15%). In Germany, while the economy grows domestic demand remains sluggish Jul retail sales fell 0.3%, against expectations (Jne -0.3%) yoy +0.8% (4.7%).

Overnight the US weekly ABC consumer sentiment index was -45 from -44. The weekly MBA mortgage applications rose 2.7% (4.9%). Ahead of Fri nonfarm payrolls the Aug Challenger job cuts fell 54.5% yoy (Jul -57.2%) and the ADP private employment survey fell 10 k against the anticipated positive number (37.0 k). Jul construction spending -1% (0.1%). Ahead of full Aug car sales data General Motors reported a 25% decline in sales yoy to 185,176 units.