News

June 15, 2009

Is Recovery On The Way? - LME Stocks Are At Amazingly Low Levels

By Rob Davies

The definition of economic recovery is one quarter of growth. Bizarrely, it takes two quarters of contraction to constitute a recession. With widespread expectations that this quarter will show a higher level of economic activity than the first quarter of the year, a number of observers have hailed this period as marking the end of the recession. There is certainly a great deal of evidence in the prices of various assets to support this view. Bond yields in the UK and the US have risen sharply since the start of the year, to approach four per cent. Bearing in mind they started the year at 2.2 per cent and three per cent respectively, that is a pretty dramatic decline in bond prices. Equity markets we know have experienced steep rallies of 30 per cent or more. Within that rise some of the individual moves have been remarkable, such as the 85 per cent increase in the share price of Man Group, a listed hedge fund.

It is not surprising that commodity prices have been carried upwards on this wave of optimism.  Oil prices are over US$70 a barrel, an eight month high, and base metals have continued to make progress.  Copper was up eight per cent last week to US$5,265 a tonne, and zinc was up a similar percentage to US$1,633 a tonne. But these were the laggards of the group. Aluminium and lead both reported double digit rises of 14 per cent to US$1,641 and US$1,786 respectively, while nickel rose 12...