Commodities | Oct 04 2012
In Japan, China’s largest trading partner delivered a weak Tankan Index on sentiment within the largest manufacturing companies. The Index ending September quarter fell to -3 from -1 and was the fourth consecutive negative reading. The only glimmer of real support appears to be coming from the US housing market, which continues to show signs of recovery, however prices remain well supported. So we have to ask ourselves, why we are long?
It all seems to be about confidence and price action, more on price action in the technical section. Governments we feel have a mandate to wrestle any negative feeling out of the market before it happens. In Europe it feels as if Spain is not going to drop into the abyss, and it appears that the ECB, EU and IMF muddling through the process is working. In the US for every bad economic number we get a good one and finally, confidence in China's ability to turn the tap on liquidity remains supportive.
The market is very sensitive to Chinese stimulus programs as it is clear that the central authority has the financial capacity to do it. At the moment the Chinese are on holidays celebrating Golden Week. We suspect that when they come back from the break we will see another program put in place. However, this time round we suspect that it will have more to do with stimulating demand for SMEs [small and medium enterprises] which make up 70% of the economy rather than stimulating demand from government infrastructure projects.
“We have an overall view that copper prices will recover from current levels” was where we left our comment from last week, however we also decided to close down our longs which was a mistake as we had to scramble back on board at US374. Governments have a mandate to wrestle any negative feeling out of the market before it happens. And this should help support the market.
Chart Point
Well we spent about 60 minutes trading below US370 and the resounding bounce suggested that this market is not weak. We are once again knocking at significant resistance US380 and then we have the old target of US400 to contend with. Momentum indicators which were looking shocking last week have since have turned, however not from a strong point. The range is US370 to US382.
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