The Best And Worst Performing Assets In Q2 And The First Half Of 2014

Here are the best and worst performing assets broken down by the three key time periods as we leave the first half of 2014 (it's not been a good year for wheat).

June

• Best: Silver
• Worst: Wheat

Q2

• Best: Russia's MICEX stock market
• Worst: Wheat

First Half

• Best: Italy's FTSE-MIB stock market and Spain's IBEX - thanks Draghi TLTRO
• Worst: Wheat

Some additional commentary from Deutsche Bank:

In YTD terms, of the main indices we track the FTSE-MIB (+14.5%) and the IBEX (+12.8%) have been the star performers. Spanish, Portuguese and Italian bonds have not been far behind. Interestingly commodities make up quite a few of the other top ten places (with the CRB index, Gold, Silver and Oil returning between 7-11%), but also 2 of the worst 3 with Wheat and Copper both down more than 6%. Also negative was Chinese equities (-1.5%) after disappointing growth in H1 which may explain some part of the weakness for certain commodities. The Nikkei (-6.1%) was the only other asset lower YTD in our sample. Apart from these four all the other assets saw a positive 2014 total return. Credit has put in a good performance in 2014 so far with most major indices returning between 4-7% which is impressive in the low yield, low spread environment.

Source: Deutsche Bank

Green energy may boost copper use

Power generation and automobiles account for about 7 percent of global copper demand, but a 20-percent shift in these markets to "green" alternatives could boost copper usage by up to 2.5 million tonnes by 2025, according to one industry analyst.

Per unit of power generated, some forms of renewable energy can be up to 37 times more copper intensive than conventional energy. Renewables have lower load factors than conventional energy sources so they use more copper to improve efficiency, according to Bernstein Investment Research & Management senior analyst Paul Gait. However, lack of government support and elevated copper prices could hinder copper usage in the renewable energy sector, according to Randy Butler, national sales manager for renewable energy at Southwire Co, which produces wire and cable products for wind and solar power systems. "(Renewables) will grow as long as they continue to garner support and tax incentives from Congress," Butler told Metal Bulletin sister title AMM.

http://www.metalbulletin.com/Article/3356902/Green-energy-may-boost-copper-use.html#ixzz36CDu8taf 

China Manufacturing Purchasing Managers Index (PMI) for June: 51.0 (vs. expected 51.0)

China Manufacturing Purchasing Managers Index (PMI) for June at 51.0, as expected.

• expected 51.0, prior was 50.8

• New orders improved to 52.8 from 52.3
• New export orders higher to 50.3 vs. 49.3 prior Production up also, to 53.0 from 52.8

Next up isat  0145GMT, the HSBC/Markit Manufacturing PMI for June, expected is 50.8, prior was 49.4, flash reading for June was 50.8

China HSBC/Markit Manufacturing PMI for June: 50.7 (expected 50.8)

China HSBC/Markit Manufacturing PMI for June,

• expected 50.8, prior was 49.4, flash reading for June was 50.8

Key points:

• Output rises for the first time since January
• Stocks of finished goods decline at strongest rate since September 2011
• Rate of job shedding eases

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

• “The HSBC China Manufacturing PMI final reading for June rebounded to 50.7, up from 49.4 in May, and relatively unchanged from the flash reading. This confirms the trend of stronger demand and faster destocking. The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments. However there are still downside risks from a slowdown in the property market, which will continue to put pressure on growth in the second half of the year. We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained.”

Base metals prices rise on anticipation of positive Chinese PMI

Base metal prices rose during kerb trading on the London Metal Exchange on Monday June 30, on the anticipation of an upbeat reading for the official Chinese manufacturing data for June.

Three-month copper closed at $7,015 per tonne, up $70 from its previous close at $6,945 per tonne. The red metal traded at a low of $6,924.50 per tonne, before hitting a high of $7,025 per tonne. "We had a much more positive than expected HSBC PMI last week which has driven up the expectation for the official PMI," an analyst said.

Copper Surges To 4-Month High

Copper has rallied almost 6% in the last few weeks with a 1.25% surge today sending the 'economic' metal back to near 4-month highs. This must means demand is picking up, right? This must mean the world is ok, right? Chatter is that this morning's home sales 'noise' surprise spike was the catalyst but it appears much more likely that a combination of a continued squeeze of a very-extended spec short position and the ongoing unwind of China's commodity-finance-deals is the real catalyst. As the market comes to terms with synthetic demand (CCFD unwinds buying back hedges) dominating any excess supply in the spot market, futures positioning still has more room to go.

Copper is surging today...

Copper short positioning has tumbled since the Qingdao probe was admitted to...

Which makes sense as Goldman suggest below...

Goldman
concludes that "an unwind of Chinese commodity financing deals would
likely result in an increase in availability of physical inventory
(physical selling), and an increase in futures buying (buying back the
hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower.

Of course, we assume that no less renowned trader than Dennis Gartman has unwound his short copper trade already at a major gain.

*  *  *

The market's shift appear to point to the fact that - just as in the case of the gold - the synthetic market for copper (futures/forwards) is dominant in the pricing structure for the metal (as opposed to goldman's hope that the spot excess supply would dominate). Although they have been right that near-month spot excess supply has crushed the commodity curve...

So once again - this 'market' signalling is anything but a sign that growth is back; merely speculative shorts/hedges being blown out and a fractional ponzi lending scheme unwinding in China.

Charts: Bloomberg

Gold Spikes To 3-Month Highs

It appears the same 'contagion' that is driving copper prices higher is also impacting gold and silver this morning. As we have noted previously, the CCFD unwind drives synthetic short (hedge) covering and inevitably rolls down the curve to drive spot strength (as the paper gold market tail wags the 'physical' market's dog). Gold is at 3 month highs and silver getting close.

One wonders if the following disclosures from Bank of America early this morning had something to do with the move: 

• Strongest weekly buying of Gold in more than two years
• Large specs increased their Gold and Silver longs at the strongest pace in two years 

Charted: