Against the Grain

The ongoing “currency tussle” saw the US House of Reps voted a measure that would let domestic companies petition for duties on imports from China to compensate for the effect of the undervalued Renminbi. No surprise ahead of the midterm elections the measure passed by 348 votes to 79. This is ahead of the G20 summit in Seoul early Nov. The Chinese PBoC in a statement before the voted said it would expand flexibility of currency but we suspect not the 25% appreciation US hardliners want. Interestingly the day after the US vote the Chinese currency eased back 0.1% watch it over the next few days. The drum beat volume rises but for now it is just noise.

There were good Select volumes In Asian as they saw a sell off then recovery. The sell off had several causes, in Japan the Spt manufacturing PMI slipped into contraction 49.5 (Aug 50.1) as Aug industrial production fell 0.3% (-0.2%) yoy 15.4% (14.2%) while retail trade rose 1.4% (0.7%) yoy 4.3% (3.8%). While in China worries about government plans to introduce property taxes and limit mortgages eased as the devil in the detail was not as draconian as expected. London began with a credit downgrade for Spain and Ireland unveiling a further massive bank bailout however investors see then as such a small percentage of the EU whole they bid the € higher hence the metals recovered Asian losses. Routine LME stocks. Traders quickly settled into currency watch mode playing helter skelter with the € ahead of the US. The 13:30 US data failed to set things alight and by the DJI there was a bit of a breakdown as it rose 60 points, the US$ bit weaker and metals gave back ground, then DJI up 100 points (best Spt performance since 1939) after Chicago PMI jumped and they took off after it. The € faltered, is QE2 required? The final hour of London was dominated by a U turn in US equities as a 100 point rallied turned into an 80 point fall. With weaker equities and strong US$ the metals found the head winds too much. Having languished oil rallied as it followed fundamentals that dominate it moves namely US inventories and some talk in OPEC about production levels.

The Spt quarter has seen cu rise 23% and 8% ytd; al 19%and 4% respectively; zn 24% / -14%; pb 31% / -5.5%; ni 19% / 24%; sn 39% / 29%; gold 5% / 18%; oil 4% / 0%; DJI 9% / 4% and US$ / € 10.5% / -5.5%. Roll on Q4.

In Australia Aug building approvals fell 4.7% (Jul 0.1%) yoy 4.4% (11.1%). More from Japan Aug vehicle production rose 20.8% yoy (16.8%). The Aug South Korean industrial production fell 1%, yoy 17.1% (Jul 15.5%). Germany continues to shine as Spt unemployment fell by 40 k (Aug -17 k) the unemployment rate at 7.5% (7.6%) as the engineering sector said Aug orders rose 45% yoy (Jul 48%). In the US weekly jobless claims 453 k (469 k) and Dr Bernanke’s favourite data, Q2 core personal consumption expenditure rose 1.0% (1.1%). At 15:00 the Spt Chicago PMI 60.4 (56.7).