Copper leading commodity charge with 15% gain

In the Lead: “Europe After Dark”

The talks intended to come up with some solutions to Europe’s debt woes entered their home stretch this morning following a quite intense Tuesday during which hopes were lifted and dashed in a roller-coaster-like series of news headlines. Investors were presented with everything from promises that this time the plan will be “grand” to a pseudo “walkout” by the EU finance ministers when they cancelled a meeting that was to be held today. Nondescript statements coming from Brussels read something like “Work on the comprehensive package of measures to curb the sovereign debt crisis will continue. The aim is to adopt all necessary elements and details concerning the package, as promptly as possible.”

On the coming attractions calendar for today and tonight, a couple of thrillers are among the offerings. First, Ms. Merkel will make a pivotal speech. Then, the Bundestag will vote on the EFSF matter. Finally, the ‘summit of all summits’ will get underway near sundown in Europe, with the hope that the sun will not be allowed to go down on Greece or Europe’s banking sector. ABC News reports that "the eurozone is locked into negotiations with banks and other private investors to take losses of as much as 60 percent on their Greek bond holdings, but negotiations for the banks have indicated that they will not be willing to accept those losses voluntarily. Forcing losses onto banks could trigger big payouts of credit insurance and cause huge turbulence in global markets.”

At least one source, the Wall Street Journal, says that you should not put much faith in the ‘new/improved’ EFSF number – whatever it ends up being. The Journal opines that issues such as how much money would actually be required for Greece and how much for the banks, as well as the key variable of trying to bring down borrowing costs for some of the PIIGS will result in the ‘final’ number to be offered soon being anything but ‘final.’ Keep the dice rolling?

That’s exactly what some did, on Tuesday; commodity players, for one. They certainly tried to come off as being busier than the EU’s finance ministers and they did not sit around on their hands on Tuesday. In fact, they decided in unison that the time was ripe for going out on a big buying spree. The sortie by the bulls actually got started last Friday and it has been as unmistakable as the Northern Lights in Arkansas. Copper has gained 15% since that day, despite hardly anyone having heard of any change of radical proportions in the metal’s fundamentals.

In fact, CFTC-provided speculative positioning reports would actually indicate feeble demand for the orange metal. Now go tell that to the specs who have been stirring the copper pot since Friday…Crude oil flirted with the $93-per-barrel price level. All of these news come literally just days after it had been concluded that commodities suffered some of their worst damage since 2008 recently. Taking anything by Vegas-destined money to that kind of on-again/off-again speculative party is clearly fraught with financial and emotional risk.

Bloomberg News noted on Tuesday that “The biggest rout in commodities since the global recession may be a sign that the fastest U.S. inflation in three years is peaking. The Standard & Poor’s GSCI Index of 24 commodities entered a bear market last month after sliding more than 20 percent from a two-year high in April, on concern that slower growth will cut demand. A slump in the gauge from a 2008 record preceded a drop in inflation, while a 2009 rebound caused the consumer price index to climb. Raw materials fell 12 percent in September as the CPI rose 3.9 percent from the same month a year earlier, the most since 2008.” Now, we ask: what percentage of that reality was reflected in Tuesday’s spirited actions?

Yesterday some copper bulls pointed to Chinese base-metal appetite as the emboldening factor for the double-digit-sized rally that the commodity has exhibited in recent days. Better than expected manufacturing data was offered up by giddy fund managers. Evidently, they had not been apprised of countervailing opinion coming from Societe Generale. One of its strategists warned that “Investors should prepare for both a hard landing and a yuan devaluation.”

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