2010 08 19

Switzerland and UK (specifically CHF and GBP) are interesting to me as they seem to have their own fundamentals going and are rather uncorrelated to global risk appetite.

Otherwise, the general scenario I have been outlining is continuing with poor numbers out of US. The Philly Fed data is actually pretty frightening to me. I think there is actually pretty good chance ISM falls below 50 for August and this could hit the markets very hard. So far economy has been running on one leg – manufacturing – and if this sputters then we’re in a big trouble. We should look to cut all long risk at any pop we see.

Oil and copper still down on economic outlook. We can look at microfundamentals in these commodities all day but it all comes down to investor sentiment.


Switzerland posts record trade surplus in July
• This is a curious development given the strength in CHF – exports continue to do well while imports sputter.
• Despite concerns a strong franc could hurt exports, confidence in Switzerland's economic outlook is improving and the ZEW investor sentiment index jumped to 9.1 points in August, from 2.2 percent in July.
• The Swiss franc, which investors regard as a safe haven, rallied more than 10 percent against the euro in the first six months of the year. That raised fears it would hurt exports, but so far there has been little evidence to support this.
• The euro zone is Switzerland's biggest trading partner.
• The customs office said the rise in exports was chiefly due to growth in demand outside Europe. Watches posted a nominal 19.9 percent increase, followed by metals and precision instruments.

UK Retail Sales rise in July – third
• UK volume of retail sales in July rose 1.1% from a year ago month. Food stores sales decreased 1.0%. The largest increase was in sales at non-specialised stores of 9.7%. Although food sales were weak, sales overall were boosted by spending related to the World Cup soccer tournament and sales of sports equipment, games, watches and jewelry.
• Some of this spending was probably “pulled up” by world cup, but nonetheless a pretty positive news.

UK factory orders at 2 year high on exports
• An index of British factory orders rose to its highest level in two years in August after overseas demand rebounded from a dip in July, the CBI's monthly industrial trends survey showed on Thursday.
• The export order book balance rebounded to -1 from July's -12, a sharp dip from the -2 recorded in June.

US economic data continues to disappoint
• Awful is the only way I can think of describing it.
• Initial jobless claims hit 2010 high last week. This number could be distorted upward by extension of unemployment benefits but even then this is clearly a bad number.
• Philly Fed number absolutely collapsed this month to -7.7 from +5.1. Sub-indices were no better with both new orders and employment plummeting.
• This together with earlier disappointing report on Empire State (drop in new orders) tells that US manufacturing is slowing sharply.

Just way too much oil out there
• Combined stocks of crude oil and refined products in commercial storage around the United States surged 5.3 million barrels last week to top 1.130 billion barrels, the highest level since weekly records began in 1990.
• Massive builds in refined products (up 6.2 million barrels) -- especially other oils (up 2.3 million barrels), propane/propylene (up 2.4 million) and distillates (up 1.1 million) -- dwarfed a small drawdown in crude (down 800,000 barrels) and gasoline (down 39,000 barrels).
• HOWEVER, in the what matters more is the direction of inventory not so much the level. If inventory keeps growing then that would obviously drag price down. Falling inventory would bode well. So I wouldn’t necessarily use this info to trade oil.
• Rather, I would use the level of oil inventory more as another gauge of economic activities – which seems pretty slow.

Nat gas build less than expected but inventory is still WAY TOO HIGH
• U.S. Energy Information Administration reported that natural gas inventories grew by 27 billion cubic feet, which fell short of consensus estimates for a build of 31 billion cubic feet.
• However, analysts noted hot weather that led to the small build will fade as autumn approaches and, without an immediate storm threat to supplies, prices will have difficulty moving higher.
• "The report didn't change the perception that we have ample supplies," says Gene McGillian an analyst with Tradition Energy said.
• Natural gas in U.S. storage remains at high levels. Natural gas in U.S. storage for the week ended Aug. 13 stood at 3.012 trillion cubic feet, 7% above the five-year average. But the storage build, which fell short of the average build for the week of 50 bcf, did cut slightly into the supply surplus when compared to the five-year average. Market participants pay close attention to these reports because they provide an indicator of the balance between gas supplies and demand.

Chinese July corn imports surge
• China's corn imports in July surged 201 percent from June to 193,896 tonnes while rice imports stood at 20,216 tonnes, down from June's 28,032 tonnes, official Customs figures showed on Thursday.
• Beijing has encouraged corn imports amid high domestic prices and tight supply after last year's drought, but official figures have not shown any sign of sharp rice imports despite floods hitting the country's early rice in the south.

Wheat rises sharply on further supply concerns
• U.S. wheat futures rose on Thursday, continuing their rebound from string of losses, as markets braced for Ukraine to confirm plans to limit exports, following the footsteps of Russia, due to a severe drought.

Tomorrow :
Fairly slow. Canada CPI would drive CAD and Canadian bond futures.