Commodity stocks have had a nice little run-up in the past few weeks. By now in the US they have normally harvested most of their summer crops but this harvest looks like it will push into December. That could cause a lot of volatility if the gap widens between demand, low current stockholdings and new crop supplies.
Fundamental support started to creep back into the commodities world; the soybean harvest is almost two weeks late, bio-fuel margins are starting to work and feeding demand is creeping higher. Outside market influences started to lend a hand ($US, crude oil prices) and fund and speculative money started to flow.
But world stocks fell Friday as weak results from General Electric Co and Bank of America Corp dimmed confidence in a profit-driven economic recovery. This saw a bout of risk aversion creep into the market and most currencies retreated against the $US.
GE, the biggest US conglomerate, reported a 42% drop in profit and Bank of America posted another quarterly loss, which pulled markets back a gear after investor appetites were whetted by strong JPMorgan Chase & Co results earlier in the week. European and US shares sank, and safe-haven US Treasury notes gained after earlier in the week US equities had moved through 10,000 points.
ProFarmer is a bit flummoxed by talk that stubbornly high inflation might see the Reserve Bank of Australia lift rates by another 0.5% by early next year, if before. This won’t be good for the $A as international investors are seeing the yields on offer here and the relative robustness of our economy and strength of the $A as a signal to invest.
But while we haven’t the resources to do the research that the RBA has, our observation is that our economy is very mixed. We were buying a car the other day and the Government stimulus money seems to be working - new car places were full of people. But you get in a taxi and they tell you it is very quiet.
We are an export dependent nation and the $A is doing us little good. After a quick spurt, Chinese buying has contracted and imports across the developed world are crawling. The US economy is still losing jobs and in Australia there are a lot of people still heavily indebted and rate rises will definitely impact consumer confidence.
We think this global recession has a sting in its tail and it won’t miss Australia. See a full wrap on our thinking on the prospects of the $A in this week’s newsletter.
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