Wednesday, May 30, 2007


Fed Minutes 'Dollar Positive"

Marketwatch reports on the markets. "Gold futures closed lower Wednesday to log their first loss in three sessions as traders fretted about the potential for a slowdown in Chinese demand after that nation tripled taxes on stock trades. 'The story of the day was the growing danger of a serious potential reversal of fortune for the metals markets, coming out of their best customer of late: China,' said Jon Nadler, an analyst at Kitco Bullion Dealers."

"Chinese officials are 'dead-serious about curbing rampant speculative fever in that country's red-hot stock markets,' he said."

"Gold, silver or copper cannot ignore the China factor, he said. 'Previous assessments about the never-ending Chinese consumption party...must now yield to more sober analyses of just what the 'real' demand that can be expected out of that country will be.'"

"Gold for June delivery closed down $4.10 at $653.10 an ounce on the New York Mercantile Exchange. The contract had gained $3.90 during a two-session win."

"China's Shanghai Composite Index tumbled 6.5% on Wednesday after the government unexpectedly tripled duties charged on stock trades, the latest in a series of official steps taken to cool speculative activity and head off what many believe is a runaway equity-market bubble."

"Currencies trading provided little guidance for gold prices Wednesday. The dollar traded mixed against other major currencies in narrow ranges, showing little reaction to minutes from the Federal Reserve's latest interest-rate meeting, which offered few surprises."

"Crude-oil futures edged higher as traders awaited data on U.S. petroleum supplies due Thursday, one day later than usual because of Monday's Memorial Day holiday."

"There's a giant short position in the gold market that's hoping seasonal weakness, a consolidating U.S. dollar and no geopolitical concerns currently on the front page, can all help gold break below key support around $640, said Peter Grandich, editor of the Grandich Letter. 'It would be best to wait for a close above $665 before assuming the shorts have lost another battle,' he said."

"Silver prices spent most of the session trading lower, but recouped nearly all of their losses by the close. The July contract finished at $13.22 an ounce, down 0.3 cent, after gaining 22.3 cents in the previous session."

From Bloomberg. "The yen rose from a record low versus the euro after Chinese stocks slumped and investors sold emerging-market assets bought with money borrowed in Japan."

"Japan's currency advanced after China raised a tax on securities transactions to stem surging share prices. The yen has fallen 3.8 percent versus the euro this year as investors have been taking advantage of low borrowing costs in Japan to fund investment in higher-yielding assets elsewhere."

"The currency trimmed its gains as U.S. shares rose, easing concern that investors will flee global stocks. 'The yen has improved a bit on the back of the news from China,' said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal. 'It will be short-lived. It isn't going to buck the trend of a lower yen.'"

"Japan's currency increased 0.1 percent to 163.45 per euro at 4:15 p.m. in New York, rising from a record low of 164.29 yesterday. It earlier reached as strong as 162.96 per euro in Asian session. The yen was little changed at 121.67 per dollar, after reaching 121.30 per dollar in Asian trading."

"The dollar strengthened against the euro as minutes from the Federal Reserve's May 9 meeting showed policy makers saw inflation as the 'predominant' concern for the economy."

"The Fed held borrowing costs at 5.25 percent at this month's meeting. The European Central Bank's benchmark is 3.75 percent and the Bank of Japan's key rate is 0.5 percent."

"The U.S. currency gained 0.1 percent to $1.3432, after earlier reaching $1.3407, the strongest since April 10. It has rebounded from a record low of $1.3681 set April 27."

"The Fed said in the minutes that inflation remains 'uncomfortably high,' and that the dollar's drop may 'reinforce the upward pressure on import prices.' They also pointed out the housing recession is likely to be a drag on the economy for longer than anticipated."

"The minutes are 'modestly dollar friendly,' said Alan Ruskin, head of currency strategy at RBS Greenwich Capital Markets. 'This is more evidence that the Fed is a long way away from supporting the easing story, that has faded fast, but is still priced in as a likely early 2008 event.'"

"Futures traders scaled back bets last week that the Fed will cut its overnight lending rate after reports showed consumer confidence gained and the housing market improved. Futures contracts show the chance of a cut in September has fallen to 12 percent, from 40 percent at the end of last month."

"The Taiwan dollar, also used to fund investments abroad, also advanced today as traders sold higher-yielding assets. Taiwan's dollar climbed against 12 of the 16 major currencies."

"China's benchmark CSI 300 Index of stocks tumbled 6.8 percent, the most in three months, after the Finance Ministry tripled the stamp duty on stock trading to 0.3 percent."

"A 9.2 percent slump in China's shares on Feb. 27 triggered a global stock rout, fueling a 2.3 percent gain in the yen against the dollar, the biggest increase since July 2005, as investors unwound so-called carry trades."

"The yen's gains were capped as U.S. stocks rebounded, erasing earlier losses. The Standard & Poor's 500 rose to a record. 'The decline in stocks triggered some correction in the yen carry trades,' said Dixon Fung, a currency trader at MG Financial Group. 'But the episode won't last long. The yen will remain weak until the Bank of Japan does something about interest rates.'"

"The yen has dropped against all 16 major currencies this year. It has fallen 2.1 percent versus the dollar, 6.5 percent against the Australian currency and 11 percent versus the Canadian currency."

"Euro declines may be limited after ECB council member Nicholas Garganas said the central bank will probably raise its inflation forecast next month and is keeping options ``open'' on rate increases after June."

"M3 money supply, which the ECB uses as a gauge of future inflation, rose 10.4 percent last month from a year earlier, after increasing 10.9 percent in March, the most since February 1983, the ECB said today."

"The Norwegian krone dropped against all 16 most actively traded currencies after the country's central bank signaled it will boost borrowing costs only gradually. The Norges Bank lifted the rate to 4.25 percent today."

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