Against the Grain

The Bloomberg headline today sums up the market mood “US Avoids Recession as Data Can’t Get Much Worse”. But as the FT points out the first day of Spt was very similar to the first day of Aug, with markets higher led by the DJI advancing over 200 points, only for it to end up down 4% on the month. So surplus cash is rushing into the month on what we said y/day was a millions reasons to by and only two to sell. What are the two, a general slowing in the world economy with stubbornly high unemployment and poor finances in both the private and public sector. The market bias is founded on a belief that the Fed has drawn a line in the sand that it will not allow the economy to falter below, the question is do the governments, central banks and supra national bodies have the resources and ability to deliver for investors. Then there is what PIMCO calls “addition by the elimination of subtraction”, the recent poor data means the speed of GDP to the downside is slowing.

Metals marked time in Asia after joining the headlong rush higher y/day. In China Aug car sales rose 15.4% to 977 k units up 59% yoy as incentives cancelled out a sales tax increase. This compares with Japanese Aug sales up 47% yoy to 291 k units as government subsidies ended and US sales down 21% yoy and twelve months on from the end of “cash for clunkers”. This makes annual auto sales of 11.47 million units (14 million units in Aug ’09). A integrated Chinese al complex has been waiting approval from the National Development and Reform Commission since ’08, the Shanxi Tongde project would produce 2.3 million tonnes of bauxite per year, 1.2 million tonnes of alumina, 400 ktpa of al and extrude 200 ktpa al. An LME stock change, all rose except al. The afternoon was hamstrung by steady US equities although metals again outperformed other areas.

The Aug UK Nationwide house prices fell 0.9% mom (-0.5%) yoy 3.9% (6.6%) and construction PMI 52.1 (54.1). The Jul Euroland PPI rose 0.2% (0.3%) yoy 4.0% (3.0%). The Q2 Euroland GDP was unchanged 1%, yoy 4% (3%). The ECB left rates unchanged at 1%. In the US weekly jobless claims 472 k (478 k). Revised Q2 nonfarm productivity fell 1.8% (-0.9%) and unit labour costs rose 1.1% (0.2%). It is a worry productivity is falling at the same time unemployment is rising. At 15:00 Jul factory orders rose 0.1% (-1.2%) and pending home sales rose 5.2% (-2.8%) yoy 20.1% (-20.3%).