Silver shed 6.2% falling by over $2.10 and underscoring once again that when it finally moves, it does so with a speed and depth that ought to be frightening to the small investors who are routinely duped into treating it as some kind of crisis hedge asset. Copper and nickel slid by 4.6% and black gold was off by 3.5% to $89.55 per barrel. The dollar was up near 77.6 on the trade-weighted index and US stock futures pointed to an ugly day in the making, at least as far as certain bank equities were concerned. European markets lost around 6% (France and Germany) as investors ran for the exit doors this morning. Traders also partially attributed the fresh rout in commodities to the overnight news that China’s large manufacturers were not exactly roaring ahead; in fact the country’s PMI metric fell to 50.4 last month.
That is a figure that skirts contraction and is the lowest since February of 2009. Industrial metals reflected this statistic and the apprehensions it engendered in the manner mentioned above. European and US manufacturing metrics are waiting in the wings and will be released shortly, as will a private China PMI survey reading that is coming from HSBC. Tuesday’s opening bell sounded a tad like a funeral chime for the Dow; it collapsed by over 275 points shortly after coming out of the starting gate.
Not much beyond silence is however coming from MF Global this morning; the LME suspended the firm from trading and US regulators are now looking into whether hundreds of millions of bucks are in fact missing from client accounts. MF bet over $6 billion on European sovereign debt and in lieu of that bet paying off it promptly resulted in a loss of nearly $200 million late last month. Still to be ascertained is what positions and in what assets the firm might be forced to liquidate if things go from worse to…terminal. The NY Times article on the firm brings up a potentially troubling development with the account of the missing funds ($700 million?) from client accounts. Missing, commingled, who knows?
The paper notes that “the unaccounted-for cash could violate a fundamental tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.” Whether or not that commandment of the brokerage industry has been breached remains unclear, but the current silence from MF’s head, Mr. Corzine, is deafening, at best.
Well, at least Moody’s appears to be in a better…mood when it comes to the ratings of the USA. The agency said today that even if the congressional supercommittee on deficit reduction fails to reach a consensus by the official November 23 deadline, it (Moody’s) will not change the current rating. As things stand right now, automatic cuts amounting to $1.2 trillion will take effect even if the ‘gang of twelve’ comes to no agreement on shaving $1.5 trillion from the budget books of America’s government.
Jon Nadler is a Senior Metals Analyst at Kitco Metals