The Bank of Japan will raise interest rates gradually based on developments in the economy and prices, minutes released today show.
``The bank would adjust the level of interest rates gradually in accordance with improvements in the economic and price situation,'' policy makers said at the July 11-12 meeting. Members agreed that their ``basic thinking remained unchanged.''
The bank kept the benchmark overnight lending rate at 0.5 percent at the meeting, which was held before the threat of a global credit crunch compelled central banks, including the Bank of Japan, to inject extra funds into their financial systems. The bank stood pat again on Aug. 23 after the market turmoil clouded the outlook for Japan's economic growth.
Governor Toshihiko Fukui told reporters after last week's decision that keeping borrowing costs too low may spur risky investments, suggesting the bank still plans to raise rates.
``The economy is developing much as the Bank of Japan had expected, and Japanese money markets have worked relatively well throughout the global crisis,'' said Julian Jessop, chief international economist at Capital Economics in London. ``The bank will therefore want to continue to return interest rates toward more normal and sustainable levels.''
The yen traded at 115.57 per dollar at 9:42 a.m. in Tokyo from 115.63 before the minutes were published.
Investors see a 34 percent chance policy makers will raise the key rate at the Sept. 18-19 board meeting, according to Credit Suisse Group calculations based on interest payments.
Monday, August 27, 2007
Currency Volatility Declines as Subprime Credit Concerns Wane
Volatility on currency options fell further from the eight-year high touched this month as concern eases that a U.S. housing slump is spreading.
JPMorgan Chase & Co.'s index of implied volatility on options for the most-traded currencies fell to 8.19 percent yesterday, down from 8.32 percent at the close of last week, and down 5.21 percentage points from 13.4 percent on Aug. 17, the highest since 1999. Implied volatility, a gauge of traders' expectations for future price swings on currencies, is a component of option prices.
The Federal Reserve cut by a half a percentage point on Aug. 17 the rate it charges banks borrow, to 5.75 percent, in an attempt to avert a credit crunch and restore investor confidence. Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy in July and other funds, including BNP Paribas SA in France, to halt withdrawals.
``The central banks told the markets that they were going to be involved and that things were going to be ok,'' said Evan Steed, head of currency options at TD Securities Inc. in Toronto. ``The huge panic that we had seen seems to be alleviated.''
Implied volatility on one-month dollar-yen options was at 12.18 percent yesterday in New York, down from 23.5 percent on Aug. 17, the highest since January 1999. Swings in the exchange rate increased as the yen rallied after investors, exiting prior bets the yen would fall, drove the currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17. It traded at 115.87 per U.S. dollar yesterday.
U.S. Treasury three-month bills yields rose 25 basis points, or 0.25 percentage point, yesterday to 4.47 percent. On Aug. 20 they touched 2.505 percent, the lowest since February 2005 as investors sought the safety of government debt.
Volatility Decline Temporary
Sales of previously owned homes in the U.S. in July declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from 5.76 million in June, the National Association of Realtors said yesterday. New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department said Aug. 24.
The decline in currency volatility may be temporary, until after the Sept. 1 Labor Day holiday, according to Tim Graf, derivatives strategist at Credit Suisse Holdings in New York.
``The subprime related credit issues are far from over,'' said Graf. ``For the next year or two, volatility should stay fairly elevated as people won't take risk for granted anymore. Actual volatility in the underlying currencies will stay high.''
A reduced certainty on the direction of interest rate changes by major central banks may increase swings in currencies. - Bloomberg
JPMorgan Chase & Co.'s index of implied volatility on options for the most-traded currencies fell to 8.19 percent yesterday, down from 8.32 percent at the close of last week, and down 5.21 percentage points from 13.4 percent on Aug. 17, the highest since 1999. Implied volatility, a gauge of traders' expectations for future price swings on currencies, is a component of option prices.
The Federal Reserve cut by a half a percentage point on Aug. 17 the rate it charges banks borrow, to 5.75 percent, in an attempt to avert a credit crunch and restore investor confidence. Rising delinquencies on subprime mortgages forced two hedge funds managed by New York-based Bear Stearns Cos. to file for bankruptcy in July and other funds, including BNP Paribas SA in France, to halt withdrawals.
``The central banks told the markets that they were going to be involved and that things were going to be ok,'' said Evan Steed, head of currency options at TD Securities Inc. in Toronto. ``The huge panic that we had seen seems to be alleviated.''
Implied volatility on one-month dollar-yen options was at 12.18 percent yesterday in New York, down from 23.5 percent on Aug. 17, the highest since January 1999. Swings in the exchange rate increased as the yen rallied after investors, exiting prior bets the yen would fall, drove the currency to a 14-month high of 111.61 per U.S. dollar on Aug. 17. It traded at 115.87 per U.S. dollar yesterday.
U.S. Treasury three-month bills yields rose 25 basis points, or 0.25 percentage point, yesterday to 4.47 percent. On Aug. 20 they touched 2.505 percent, the lowest since February 2005 as investors sought the safety of government debt.
Volatility Decline Temporary
Sales of previously owned homes in the U.S. in July declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from 5.76 million in June, the National Association of Realtors said yesterday. New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department said Aug. 24.
The decline in currency volatility may be temporary, until after the Sept. 1 Labor Day holiday, according to Tim Graf, derivatives strategist at Credit Suisse Holdings in New York.
``The subprime related credit issues are far from over,'' said Graf. ``For the next year or two, volatility should stay fairly elevated as people won't take risk for granted anymore. Actual volatility in the underlying currencies will stay high.''
A reduced certainty on the direction of interest rate changes by major central banks may increase swings in currencies. - Bloomberg
Gold prices could hit $700/oz by end '07 - GFMS
MUMBAI (Reuters) - Gold could rise to $700 an ounce by the end of 2007 by regaining its safe-haven appeal and decoupling from recent financial market volatility that has swept key metals lower, consultancy GFMS said on Friday.
Gold has traditionally been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
Bullion had hit a seven-week low last week as investors sold the precious metal for cash to cover margin calls on losses arising from a meltdown in the U.S. subprime mortgage market.
Paul Walker, chief executive officer of London-based GFMS said this trend was poised to change.
"My view is that the ground work is in place for a substantial rally in gold," Walker told Reuters on the sidelines of a conference in Mumbai.
"Gold will start to decouple and trade on its own," he added.
Spot gold hit a one-week high of $668.90 an ounce on Friday, up from its previous close of $659.20 in New York. The metal had surged to a 26-year high of $730 last year.
On gold imports into India, the world's largest consumer of the metal, Walker said the number was likely to rise to 810 tonnes in 2007, with imports of 140 tonnes seen in both the third and fourth quarters, if prices stayed between $635-$675
Gold has traditionally been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
Bullion had hit a seven-week low last week as investors sold the precious metal for cash to cover margin calls on losses arising from a meltdown in the U.S. subprime mortgage market.
Paul Walker, chief executive officer of London-based GFMS said this trend was poised to change.
"My view is that the ground work is in place for a substantial rally in gold," Walker told Reuters on the sidelines of a conference in Mumbai.
"Gold will start to decouple and trade on its own," he added.
Spot gold hit a one-week high of $668.90 an ounce on Friday, up from its previous close of $659.20 in New York. The metal had surged to a 26-year high of $730 last year.
On gold imports into India, the world's largest consumer of the metal, Walker said the number was likely to rise to 810 tonnes in 2007, with imports of 140 tonnes seen in both the third and fourth quarters, if prices stayed between $635-$675
Central Bank sales won’t knock gold price
THE gold price will not be undermined by a possible acceleration in central bank gold sales as the third year of an agreement capping central bank gold sales at 500 tons per annum draws to a close.
That’s the view of Steve Shepherd, a gold analyst at JPMorgan Precious Metals Research, who says central bank gold sales are just one variable in the broader gold price equation.
“At the moment central banks are below par in terms of the rate they need to make the 500 ton quota,” he said. “On that basis there is a risk that they will accelerate sales as they approach the end of the third year of the agreement but our view is that this won’t have a significant impact on the gold price.”
Shepherd’s comments come after the World Gold Council (WGC) released statistics showing that central bank gold sales under the Central Bank Gold Agreement 2 (CBGA2) amounted to just 294 tons as at 12 June 2007. That left scope for remaining sales of 206 tons until 26 September 2007 when the third year of the agreement comes to an end.
The CBGA2, which commenced on September 27 2004, is a pact between the European Central Bank and 14 other central banks that limits gold sales to 500 tons per year over a five-year period. Central banks are thought to control around 20% of the world’s gold supply.
Nikos Kavalis, a precious metals analyst at GFMS, said that if recent third-quarter gold sales by central banks were added to the WGC’s June figures, confirmed sales in the third year of the CBGA2 amounted to 391 tons.
“We expect underselling in the third year,” said Kavalis.
Standard Bank senior commodities analyst, Dr Walter de Wet, agreed that central bank gold sales would not dampen the gold price.
“Total global gold demand is in the order of 4,000 tons per annum so 500 tons amounts to just 12,5%,” he said. “Given that sales do not occur all at once but are spread out over a year I can’t see how it would have a major impact.”
De Wet also said that it would not be in the interests of central banks to disrupt the gold price.
“The minute central banks indicate that they want to sell gold the price of the metal would drop thereby reducing the value of their remaining reserves,” said de Wet.
Shepherd agreed, saying that the very existence of the CBGA2 indicated that Banks did not want a volatile gold market.
“It’s not in any central bank’s interest to have a disorderly gold market as it causes financial instability that hurts everyone,” said Shepherd.
David Davis, a gold analyst at Credit Suisse Standard Securities, concurred that there was little chance of central banks reaching the 500-ton quota by the end of September and that even aggressive selling would have a limited effect on the gold price.
“I don’t think they’ll reach 500-tons by the end of September,” he said. “Even if they do increase sales between now and then I doubt it would have a major impact as there’s a significant counterbalancing effect from increased de-hedging and exchange traded funds (ETFs), which both take gold out of the market.”
That’s the view of Steve Shepherd, a gold analyst at JPMorgan Precious Metals Research, who says central bank gold sales are just one variable in the broader gold price equation.
“At the moment central banks are below par in terms of the rate they need to make the 500 ton quota,” he said. “On that basis there is a risk that they will accelerate sales as they approach the end of the third year of the agreement but our view is that this won’t have a significant impact on the gold price.”
Shepherd’s comments come after the World Gold Council (WGC) released statistics showing that central bank gold sales under the Central Bank Gold Agreement 2 (CBGA2) amounted to just 294 tons as at 12 June 2007. That left scope for remaining sales of 206 tons until 26 September 2007 when the third year of the agreement comes to an end.
The CBGA2, which commenced on September 27 2004, is a pact between the European Central Bank and 14 other central banks that limits gold sales to 500 tons per year over a five-year period. Central banks are thought to control around 20% of the world’s gold supply.
Nikos Kavalis, a precious metals analyst at GFMS, said that if recent third-quarter gold sales by central banks were added to the WGC’s June figures, confirmed sales in the third year of the CBGA2 amounted to 391 tons.
“We expect underselling in the third year,” said Kavalis.
Standard Bank senior commodities analyst, Dr Walter de Wet, agreed that central bank gold sales would not dampen the gold price.
“Total global gold demand is in the order of 4,000 tons per annum so 500 tons amounts to just 12,5%,” he said. “Given that sales do not occur all at once but are spread out over a year I can’t see how it would have a major impact.”
De Wet also said that it would not be in the interests of central banks to disrupt the gold price.
“The minute central banks indicate that they want to sell gold the price of the metal would drop thereby reducing the value of their remaining reserves,” said de Wet.
Shepherd agreed, saying that the very existence of the CBGA2 indicated that Banks did not want a volatile gold market.
“It’s not in any central bank’s interest to have a disorderly gold market as it causes financial instability that hurts everyone,” said Shepherd.
David Davis, a gold analyst at Credit Suisse Standard Securities, concurred that there was little chance of central banks reaching the 500-ton quota by the end of September and that even aggressive selling would have a limited effect on the gold price.
“I don’t think they’ll reach 500-tons by the end of September,” he said. “Even if they do increase sales between now and then I doubt it would have a major impact as there’s a significant counterbalancing effect from increased de-hedging and exchange traded funds (ETFs), which both take gold out of the market.”
Bank of China’s hit
Big number, big panic. Bank of China spooked investors this week when it confessed to holding almost $10bn of securities backed by US subprime mortgages. That is the biggest exposure announced by any bank to date and no small change for China’s number two lender. Bank of China did not raise a whole lot more than $10bn when it listed on the Hong Kong stock exchange last year and generated substantially less in operating profit in the first six months of this year.
True, the subprime exposure looks less toxic when measured against the bank’s capital. It represents a little more than 1 per cent of total assets and about one-fifth of shareholders’ equity. It is also relatively top-drawer paper. More than 75 per cent of the securities are AAA-rated while almost all the remainder are AA.
True, the subprime exposure looks less toxic when measured against the bank’s capital. It represents a little more than 1 per cent of total assets and about one-fifth of shareholders’ equity. It is also relatively top-drawer paper. More than 75 per cent of the securities are AAA-rated while almost all the remainder are AA.
Are commodity futures the best contracts to trade?
Commodity Online SpecialOne of the great advantages of commodity futures trading is the wide variety of un-correlated groups that you can trade. The main trading groups are: . Currencies . Interest Rates . Stock Indices . Grains . Meats . Energies . Metals . Food and Fibre The big moves only come a few times a year - and of course, in futures and commodities, it’s the big moves that make the big profits. Single Groups or Diversification? In futures, and commodity trading, this depends on the risk / reward you want - and the amount of capital you have. If you trade just one or two groups, then your commodity and futures trading risk / reward in will be higher The Best Contracts to Trade We have outlined the best futures and commodities contracts below - based upon the following criteria: . Liquidity, and investor participation . Long term trends, over the last 30 years. Currencies A great market for long-term trend followers - all currencies exhibit long-term trends - as they reflect the underlying health of the economy. A good place to start is the Dollar Index, which can be less volatile than the individual currencies - and is suited to long term position traders. Interest Rates Another great group - interest rates - considered “boring”, by many commodity futures traders - but they’re not! They have great long-term trends - with the best contracts being the T Bond and T Notes. Stock Indices The S & P is the one, most commodity & futures traders look at - but there are plenty of others. Good markets to trade include the DAX, NASDAQ and Dow Jones. Energies Energies are the biggest physical commodity group in the world - in terms of volume. The energies group exhibits good, long-term trends all the time. All traders should start with Crude Oil, but for traders who really want to taste some action, check out Natural Gas – when trends come here, they’re huge! A word of caution on this market - it’s only for futures commodity traders with deep pockets - and strong nerves. Adding Diversity The above commodity futures are all suitable for trading as individual groups - however with the contracts listed below, we’d only trade as part of a diversified portfolio - due to lower liquidity, and limit moves. Metals The main focus for speculators is on, Copper, Gold and Silver - however the White Metals of Platinum, and Palladium, have produced some of the best trends of recent years. These rare metals are precious metals - but double up as industrial metals as well. Although trading volumes are thin, volatility and limit moves are frequent - for traders with deep pockets, these metals offer outstanding long-term trends. Grains and Meats Grains and Meats were big contracts for speculators in years gone by - but they have lost some of their shine. Speculators now trade more financials - however, Pork Bellies, Live Hogs, Feeder Cattle, and Live Cattle, still offer commodity futures traders great trends. The grains are similar and the Soybean complex - Wheat, and Corn, are the markets to look at. Food and Fibre The markets to look at are Orange Juice, Coffee, Cocoa and Cotton. Cotton is probably the best market for long-term trend followers - but this is very much a personal choice. Successfully Blending a Portfolio Today, many traders simply focus on the financials (and currencies are the best group to trade) - however as you can see from the above, that commodity futures traders, have plenty of contracts from which to choose. With the global economy expanding fast, there’s one contract that looks a great long-term buy - the contract to buy, and hold, for huge gains. It’s the CRB index - which is a basket of commodities - and it looks set to soar – because, commodities go up, based upon the huge demand from countries, such as India and China - check it out!
Indians purchase record gold this year
MUMBAI: Gold purchases in India are up to 300 tonnes in the wake of rising jewellery demand thanks to a decline in rupee prices and lower price volatility for gold, global metals consultancy GFMS said. This is more than double of the gold purchases in India last year, it said. India is the world’s largest consumer of the yellow metal. India consumes anywhere between 600 to 700 tonnes of gold annually, worth $6-7 billion. But domestic production of gold is only about 2 tonnes per annum.The consultancy said that the net gold de-hedging in the second half of 2007 will be between 1.5 million and 2.5 million oz globally. Global dehedging stood at 9.5 million oz, led by Newmont and Lihir, GFMS said. It said that there are 34.2 million oz left in forwards, loans and options, with a negative mark-to-market of $8bn, a reduction of $1.8bn in the quarter. "While it would seem highly unlikely that the second quarter's record levels of de-hedging will be surpassed in the second half of the year, it would nevertheless seem reasonable to expect ongoing de-hedging to outpace the delivery schedule," GFNS said in a statement. Already, a number of smaller gold companies have started rolling their plans for de-hedging relatively small amounts of gold. GFNS said that the June quarter's de-hedging activity was linked mainly to merger & acquisition activity as targeted companies' hedge positions were unwound.
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