Tuesday, August 22, 2006


Markets Watch Central Bank Moves

Some Fed comments shook up the currency markets today. "Europe's 12-nation currency fell to $1.2803 at 5 p.m. in New York, from $1.2891 late yesterday, when it reached $1.2938. It was the euro's largest decline since July 17. The dollar remained higher after Federal Reserve Bank of Chicago President Michael Moskow said the central bank may have to resume raising interest rates."

"'The risk of inflation remaining too high is greater than the risk of growth being too low,' Moskow said in prepared remarks. 'Some additional firming of policy may yet be necessary.' Separately today, Atlanta Fed President Jack Guynn said there's an 'upward creep in inflation,' though inflation may recede 'over the medium term.'"

"The Euro declined from an 11-week high as traders scaled back expectations the European Central Bank will lift interest rates twice more this year. 'There is a clear concern that the current expansion may not last,' said Jens Nystedt, a currency strategist in New York at Deutsche Bank AG. 'The ECB may not have to hike as aggressively. It hurt the euro today.'"

"Mexico's peso fell by the most in three weeks on concern the U.S. central bank may resume raising interest rates, reducing the allure of emerging-market assets. 'On a day with limited data and news, Moskow's hawkish declarations suggesting that more hikes may be needed pushed the peso to test 10.84' per dollar, Pedro Tuesta, chief economist at research firm 4Cast Inc., said."

"The yield on Mexico's benchmark 8 percent bond due in December 2015 rose 1 basis point, or 0.01 percentage points, to 8.14 percent."

"'The risk of inflation remaining too high is greater than the risk of growth being too low,' Moskow said."

From Reuters. "Gold prices moved down slightly in choppy trade on Tuesday partly influenced by movements in the dollar, and analysts said the metal might witness an uptrend after the end of the current holiday season. Palladium tracked gold's movements, jumping to a 2-1/2-month high before drifting lower. Other metals also traded in a range."

"'The market is thin. There are a few players playing. Funds are very much sidelined,' said Peter Hillyard, head of metals sales at ANZ Investment Bank. 'They (funds) are essentially still long and they are just sitting on their positions and not doing anything. So what you have got is the day-traders controlling the market.'"

"Spot gold hit a high of $628.50 an ounce before falling as low as $620.10. It was quoted at $623.70/624.50 late in New York, against $625.60/626.40 the previous day. Palladium rose as high as $343.50 an ounce before falling to $339/344, against $342/348 in the U.S. market late on Monday. Prices spiked to a four-year high of $406 in May."

"Some dealers in Hong Kong said there was a pick-up in demand for palladium and platinum in China. Platinum rose to $1,237 an ounce before falling to $1,227/1,232, down from $1,230/1,235. Silver fell to $12.21/12.31 an ounce from $12.29/12.39."

"Oil steadied near $72.50 a barrel. 'The tension in the Middle East region is likely to buoy both gold and crude oil prices,' Standard Bank said."

"Germany's Bundesbank is not planning to sell gold from its reserves in the next year of the central bank gold agreement, its president Axel Weber indicated."

Here's an article on China:

'China has a problem that seems enviable: It's sitting on a mountain of cash. It has amassed nearly $1 trillion in foreign currencies in just a few years by becoming the exporter of choice for all kinds of manufactured goods.'

'Instead of a sign of economic strength, however, the astronomical figures are evidence of China's weaknesses. 'This is other people's money,' says Andy Xie, Morgan Stanley's chief Asia economist. 'The impression that the Chinese government is very rich is not correct.'

'Qing Wang, a Bank of America economist, said this is a tremendous threat to the government in managing its monetary policy. The newly created yuan slosh through the domestic economy, leading to a rash of investment in wasteful domestic industrial projects and a huge asset bubble that has built up in real estate. If it bursts, that could upset the country's fragile banking industry.'
If it bursts...it might agitate one billion Chinese citizens. Give 'em a little taste of capitalism, then smack 'em with a financial crisis. That can't turn out well.
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