Thursday, June 08, 2006

 

Market Turmoil On Rate Uncertainty

Markets are shook up all over the globe. "The European Central Bank raised its key interest rate by a quarter percentage point to 2.75% Thursday in a move aimed at keeping inflation at bay. Most European stock markets were sharply lower, responding to Wall Street's extended slump and the ECB."

"Japan's benchmark stock index plunged more than 3 percent Thursday, falling to its lowest in six months amid anxiety that possible U.S. interest rates hikes will slow U.S. and perhaps global growth. The Nikkei 225 index dropped 462.98 points, or 3.07 percent, to finish at 14,633.03 points on the Tokyo Stock Exchange, the index's lowest close since Nov. 18. The market has fallen 7.3 percent this week."

"Investors were jittery about the third straight decline overnight on Wall Street and prospects for higher U.S. rates, which could slow economic growth and demand for Japanese exports. 'Continued selling is based on worries among investors that the Fed may raise U.S. interest rates further to rein in inflationary pressures, even if allowing for an economic slowdown,' said Takashi Ushio, a strategist at Marusan Securities Co.'

"The sell-off was aggravated by heavy training ahead of Friday's settlement of June futures contract, said Akio Yoshino, market economist at Societe Generale Asset Management. 'Until global interest rates movements become clearer we'll see a move out of equities,' Yoshino said."

"Canada's dollar fell for a fourth day as commodities including crude oil, gold and copper declined. The Canadian dollar has weakened since reaching a 28-year high last week as commodities extended losses, reducing demand for the currency. The Canadian dollar declined as much as 0.8 percent to 89.15 U.S. cents before rallying to 89.45 U.S. cents at 9:03 a.m. in Toronto. It closed at 89.86 U.S. cents yesterday. One U.S. dollar buys C$1.1179.'

"The currency reached 91.44 U.S. cents on May 31, the highest since 91.47 U.S. cents on Jan. 4, 1978."

"The currency extended its loss as Canadian new-home construction declined in May as builders curtailed apartment and condominium projects."

"Gold futures tumbled $10 an ounce early Thursday as the dollar rallied on continued rate hike expectations and news of the death of Abu Musab al-Zarqawi, the leader of al-Qaida in Iraq, in a Baghdad air strike. The announcement by Iraqi Prime Minister Nouri al-Maliki sent oil futures below $70 a barrel and sent the dollar higher. But the greenback really took off following less hawkish than expected comments from European Central Bank President Jean-Claude Trichet."

"Other metals fell sharply too. Silver was down 36 cents at $11.53 an ounce, platinum fell $15.50 to $1,216 an ounce, palladium fell $9.85 to $328.90 an ounce."

"Editor Kevin Kerr said the market's initial reaction to the Zarqawi news may be short-lived. The news 'seems to have sent a message that oil production in Iraq may increase and that the death also somehow is good for the dollar,' he said. 'As we have seen in the past though, if anything the killing may lead to more attacks and even worse violence, having exactly the opposite effect.'"

"Gold has fallen for the past three sessions since Federal Reserve Chairman Ben Bernanke's comments on inflation at a bank conference Monday revived fears in the market of further interest rate hikes."

Comments:
Stocks down, dollar up, PMs down...

It's fascinating that so many intelligent people are displaying such "cognitive dissonance". A weaker economy ultimately means a weaker dollar, not a stronger one. Once they snap out of it, PMs will skyrocket.

In the meantime, the Fed's just providing more opportunities to accumulate PMs on the cheap!

p.s.: Oh, and since I'd like to buy a nice home without mortgaging my life away, BB may be helping by accelerating the housing bust.
 
"That means he's targeting the commodities bubble"

We haven't yet seen a big correction in crude oil, the biggest inflation driver of them all. Could it be that the Fed's deliberately trying to cool overall US consumption to affect a decline? This could take months. If true I'd say that that's entirely too much power to be entrusted in so few hands.
 
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