US GDP "strong" ... Dell down 15% ... waiting for Gustav ... South Africa expecte a bumper harvest ... the bull mkt in rubber ...

Stocks were strong yesterday (SPX +1.5% @ 1300) and we've just had a strong overnight in Asia (Nikkei +2.4%, Shanghai +2.8%) where Japanese CPI came in weaker while industrial production, the PMI, housing and retail sales all came in stronger ... sounds like Goldilocks-san to me ... falling energy prices certainly helped yesterdays US rally but it was the GDP report which really got things moving, the latest data report this week to come in stronger than expected and get the talking heads on CNBC into a frothy excitable lather.

To be fair, if you allow yourself the economists option of exing-out the things which are bad, like the US housing outlook (and UK housing outlook for that matter - yesterday's nationwide housing report was grim, as was an excellent broker note I read very plausibly arguing for a50% housing correction), the fundamental insolvency and continued deterioration of the US financial system or the related question mark over the entire model of US economic growth over the past 25 years, things don't look so bad. That's certainly the view of the stock market right now. Onwards and upwards and who am I to argue? No one.

Maybe Dell is though. After hours they reported weak profits citing margin pressure and a spread of US weakness to Europe and Asia. The stock was down 15% aftermarket and the SPX futures are down a couple of points this am.

The dollar is slightly weaker in Asian trading this morning, partly because of Dell presumably, but no doubt too because of the overnight oil price which strengthened once more after yesterday afternoon's shenanigans. At 15.30 yesterday, Nat Gas storage came in at 102bcf, materially higher than the 84bcf expected. I think that puts storage well above seasonal averages and should ensure sufficient inventory that the US need not import LNG from the world markets, where it is trading as high as $25/mbtu in parts of Asia. Of course, a very cold winter could yet undermine the US position, as could a particularly devastating hurricane season, as was the potent concoction in the winter of 2005 which pushed NG prices above $15. As I write, Gustav is back down to a tropical storm but only because it made land in Jamaica. As Louisiana braces itself once again, as Shell, Exxon, BP etc. evacuate staff (Shell, who's rigs lay in Gustav's direct path, has already said its production will be affected), and as the IEA says it stands ready to release oil stockpiles if required, we'll just have to see what level of intensity it reaches today when it returns to the warm waters of the GOM.

Such concerns were far from the forefront of the NG market's mind yesterday, however, with a volatile session even by that market's wild standards. It seems as though everyone who bought NG over the last couple of days thinking that reading obscure weather web sites made them expert at hurricane prediction tried to sell at exactly the same time - immediately after the bearish storage report. NG was nearly 10% lower at its worst. This pulled down crude and, as far as I could see, rippled out into the rest of the commod space - crude and grains were all trading lower last night, though now seem to have recovered.

On the Ag front, and following on from the the weakness of the Baltic Freight index I highlighted here US grain exports fell 60% last week, US prices being out of kilter with global prices apparently. On the supply front, South Africa is the lastest country to announce its expectation of a bumper crop. The 12m tonnes the Crop Estimates committee now expect will be the highest in 13 years. This year is certainly shaping up nicely in terms of grain output. Wherever you look, Russia, Ukraine, France, Germany, Australia etc etc etc, you see an impressive supply response to recent high prices.

However, what I find staggering is that notwithstanding this response, the DoA project inventories to be at similar levels to those at the beginning of the year. In other words, demand is rocketing too. If correct, the recent softness of agricultural prices is less a reflection of slack markets than it is of a fortuitous harvest. Mother nature is unlikely to remain so giving in future harvests. The next "food crisis" surely lurks menacingly around the next corner. Its just that as Kevin Keegan said, we don't know where the corner is.

Rubber inventories on the Tokyo Commod Exchange hit a three year low this morning, pushing rubber up to Y342/kg, close to its all time high of Y352 reached a few weeks ago. An economist argued a few months ago to me that since all commodities were rising in unison, there must have been a single (monetary) driver. A priori proof, he argued, of a bubble.

Of course, to a man with a hammer every problem is a nail. And while he's right in the sense that there is one driver - simplistically, let's just call it China - he's wrong in that not all commodities are actually rising. Nickel and zinc are good examples of markets where supply and inventories have risen (so much that prices have fallen to sub-marginal cost levels now - see XTA's nickel mine closure a few weeks ago) and I suspect shipping rates will follow suit in coming years (with one new ship to float every other day in 2009, one each day in 2010 I seem to recall reading somewhere). The ones which have risen and remain "elevated" are precisely the ones with supply issues and low inventory levels, as the rubber market currently demonstrates (and yes, it does feel silly to be talking about "the rubber market").