Asian Flu? Or January Sales Come Early?

The world markets appear to have caught a cold overnight, as fear spread from the stock market into just about everything else, including agricultural commodities. Even gold has had a bad case of the jitters this morning, down 4% at one stage.

Shares in Asia fell sharply overnight on concerns over exactly what the implications are, particularly for the banking sector, of Dubai World being unable to meet its financial commitments.

It seems that everybody was assuming that Dubai World were underwritten by the Government of Dubai and Sheikh Mohammed Al Maktoum, Dubai’s billionaire ruler. Now it looks as if things maybe aren't quite that straightforward.

It won't come as a huge surprise to hear that Credit Suisse estimate that European banks are exposed to half of Dubai's $80 billion debt. And British banks are likely to be holding the lion's share of that.

Consequently UK banking shares took a GBP14 billion hit in their value yesterday.

Overnight Tokyo's Nikkei fell 3.2% to 9,081.52, a new four-month closing low. Hong Kong's Hang Seng index closed down 4.84% at 21,134.5.Crude oil is USD4/barrel lower at just under USD74/barrel, and the overnight eCBOT market is also sharply weaker with soybeans down the thick end of 30 cents, wheat down almost 20 cents and corn 13 cents easier.

The pound is also taking a pasting at 1.6360 against the dollar and just under 1.10 against the euro.

Is all this just a knee-jerk reaction? It could be that, in the cold light of day, investors will come to the conclusion that sticking their money into agricultural commodities is a safer bet than equities. On recent evidence it's certainly better than money in the bank!

In case you missed it yesterday, the Chinese government effectively put a floor in their domestic soybean and corn market by saying they'd support the rural sector by buying all the soybeans and corn they want to sell, at prices equivalent to a generous USD548 and USD220/tonne respectively.

In the UK, whilst Chicago might be down, the pound has fallen 3.65 cents against the dollar since midnight on Wednesday. That will more than compensate for any movements in Chicago.

Meanwhile the nearby fundamentals are tight. The rapemeal market has moved up a tenner in a week, but even at that it still looks cheap with hipro soya nudging GBP300/tonne, and the wheatfeed market is up thirty quid in a month.

European shares have only opened fractionally lower this morning, having already done most of their falling yesterday, when the FTSE 100 suffered its worst one-day fall since March. On the FTSE 100 today Lloyds and RBS are amongst the mornings biggest gainers on bargain hunting, and it's not even the January Sales yet!