Catching Up and Looking Forward

As the week draws to an end, indices are not much moved from their starting levels. We’ve had the excitement of a potential sell off post China weakness and others risk indicators looking shaky. As has so often been the case during this rally, any sell off is fleeting and so it was again. The Fed’s somewhat sanguine outlook, Paulson’s bank purchases and better Euro GDP figures all combined to send the bears fleeing (to LA it seems) and produce an impressive rally.

Lest anyone get complacent however, yesterday’s jobless claims and retail sales threw a spanner in the works and despite the rest of Asia being in the blue, China was heavily in the red overnght. Rumours have abounded recently in China; between reining in lending and insurance companies selling equities in the face of redemptions. Few markets are as prone to big moves on rumours/press articles etc as China and recent weeks’ moves have showed just that. Given the leading indicator nature of the Chinese market, if this continues, is it only a matter of time before Western markets follow suit?

A couple of weeks ago Pimco’s El-Arian coined the phrase “sugar high” in relation to the equity market. In a piece of writing so contrived as to be worthy of the Daily Sport at best, I’m going to link this in to the fact that the sugar market itself has recently seen a new high. This has been garnering much interest of late amidst talk of lower Indian cane output as a result of not enough rain. Meanwhile, across the globe in Brazil, too much rainfall is disrupting things out there. UBS placed c$500m of the erstwhile little known Tongaat Hulett the other day and that was well received. Meanwhile US food producers have been calling for an increase in the amount of tariff free sugar they can import. The WSJ ran the story yesterday. Looking at the chart for sugar and you think, I’ve missed this one for sure…

but then if you had a dollar for everytime you thought something couldn’t go up or down anymore in the last couple of years…and it did just that, you’d probably be on a beach somewhere, sipping margaritas and putting extra cubes of really expensive sugar in your tea…just because you can.

Away from all that, we got some good news from NZ where Q2 retail sales rose for the first time since Q4 2007 and the house price index rose in annual terms for the first time since March 08. The RBA Governor Stevens continued to fan the fire of a rate hike being the next move but would not be drawn to comment on a timeframe. As to be expected both currencies are better today.

The excitement later this afternoon comes in the form of the CPI which is expected to show further deflationary pressures, the Cap utilization rate and Industrial production numbers. The latter of which is expected to be positive for the first time since Oct 08. We could probably do with a bit of excitement too as volumes are light today at 75%. Until 13.30 anyway, and very possibly after, it feels like we'll be drifting sideways.