Friday, June 16, 2006

 

China Taps The Brakes

The big news today was a move by China. "The Canadian dollar fell sharply against the U.S. currency on Friday on rising concerns about future demand for commodities, after China's central bank decided to increase its reserve requirement. Much of the currency's fall came after China decided to curb the rapid credit growth that Beijing fears could cause the red-hot economy to overheat."

"China raised the proportion of money banks must keep in their reserves by half a percentage point, effective July 5. 'That's one of the reasons for the Canadian dollar weakness,' said Carolyn Kwan, markets economist at Scotia Capital. 'It is one of the weakest, if not the weakest of all the major currencies today.'"

"China's move is 'signaling their concerns that the economy is operating really too strongly,' Kwan said. There has been a lot of loans made by Chinese banks and I think that it has grown at such a pace that the authorities feel that there is a need to really contain that somewhat."

"Raising the reserve requirements will take money out of China's economy and could have an impact on its huge appetite for commodities, she said."

"The Canadian dollar was also hit by the U.S. dollar's momentum after data pointed to an unexpected rise in U.S. consumer sentiment this month. The University of Michigan survey showed consumer sentiment rose in early June, beating expectations for an unchanged reading."

"The US dollar traded mixed against other major currencies Friday after new data showed the trade deficit narrowing in the first three months of this year. The euro bought $1.2635 in afternoon New York trading, up from $1.2609 in New York late Thursday. The British pound also rose to $1.8503 from $1.8472."

"The dollar edged up against the Japanese currency, rising to 115.09 yen from 115.00 in New York. In other trading, the dollar bought 1.2313 Swiss francs, down from 1.2326 late Thursday."

"The Commerce Department reported Friday that America's current account trade deficit fell to $208.7 billion in the January-March quarter, down 6.5 percent from a record $223.1 billion deficit set in the final three months of last year. Although the improvement exceeded expectations, the quarterly deficit still remains at the second highest level on record."

"Analysts also predict rising oil prices to send the deficit in the current quarter to a new high, and they forecast that the imbalance for all of 2006 is on track to set a record for a fifth straight year."

"Gold surged 3.3 percent on Friday on dollar weakness and firm oil prices, but pared gains in the afternoon trade as some investors sold their positions ahead of the weekend. Gold remained under threat and may slip, as people were not yet convinced the recent downtrend is over, analysts said."

"'The majority of trading has been done this week. I think we will have a quiet close to the week,' said a precious metals trader in London."

"Gold rose as high as $585.00 an ounce before easing to $574.30/575.00 by 1352 GMT, against $566.50/$567.50 in late New York on Thursday, when it jumped as much as three percent."

"Traders said there was no impact of China news on precious metal prices. 'Overall, I see precious metals to remain vulnerable in the short-term. however, I don't expect it to test new lows since physical demand and bargain-hunting should provide some support,' said another European dealer."

"In other precious metals, silver advanced as high as $10.35 an ounce before falling to $10.05/$10.15, compared with $10.00/10.10 late in New York. Platinum fell to $1,157/1,163 an ounce from $1,160/1,170, while palladium rose to $301/309, compared with $295/$300 in the U.S. market."

Comments:
The Financial Times:

'The US on Thursday signalled it would not fight efforts to create an Asian currency unit, turning the page on over a decade of largely consistent opposition to Asian monetary integration.'

'The green light from the US is a big boost for Japan, which has been pushing the idea of an Asian currency unit loosely modelled on the European currency unit, the precursor to the euro, in face of considerable regional scepticism. It comes at a time of growing diplomatic closeness between Washington and Tokyo.'

'While formidable obstacles remain to the creation of an Asian currency unit, with Asian countries unable to agree on weightings or on the inclusion of Taiwan, the US decision and the broader evolution of US Asia policy it represents may in time be seen as highly significant.'

'The signal was given by Tim Adams, the under-secretary for international affairs at the US Treasury, in a closed session of the World Economic Forum in Tokyo.'

'While Mr Adams spoke in general terms, a copy of his prepared remarks, which has been obtained by the Financial Times, spells out clearly the US position on the Asian currency unit. They say 'we do not see the ACU as a competitor to the dollar.'
 
Anyone watch BB's speech? Amazes me how he can touch on virtually every "challenge" facing the economy and all Wall Street hears is "Goldilocks".

Also, T. Boone Pickens was on K&C today. He stated that Saudi's pumping full out (currently at 9.05mbd) and their MOM production is trending down.
 
Ben,

This post appeared at Iacono's TMTGM blog:

BenJones said...

Gold? Next stop $500, then watch it fall like a set of car keys out the window from the 87th floor.

Clearly gold has become disconnected from fundamentals and is in the process of reverting to the mean, as all asset classes must. What goes up must come down. Don't catch a falling knife or fall for a dead cat bounce.

Gold should hit resistance and come in for a nice soft landing at about $400.

June 16, 2006 12:56 PM


The name even connects to HBB.
 
TJ,

There are a lot of Ben Jones' in the world. That's not me. I always appreciate a link!
 
Of course it isn't you -- although I admit wanting to gauge your reaction. :-)

Just thought you ought to know that someone's attempting to trade on your fame.
 
WMBZ, Hope you're wrong on the silver call. ....or rather I say let it come later as I have already backed up the truck previously.

OT ,but regarding Bens' comment above. That is the new model ala the world economy. That's why we have not stopped the illegal imm. among alot of reasons ,but read about the "AMERO" think..EURO.
NA currency ,and open borders North ,and South.
I am leaving or else I'd find the link...Congress has already effectively put it in motion.
 
Puplava's an unapologetic inflationist, and he makes lots of solid points. But, being an analyst by nature & trade (IT), I have to argue everything with everybody... and I don't see inflation "saving" us either.
 
Read this today...Kind of interesting. Is this significant or just more duff to read through? Maybe some of you longtimers can validate some of it?

http://www.jsmineset.com/

Posted On: Sunday, June 18, 2006
Remarkable Development in the Gold Market
Author: Dan Norcini
 
Good stuff. WMBZ, this is pretty much in line with your sources, right?
 
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