Monday, June 25, 2007
US$ May Need Adjustment Process
AFX News reports on the BIS. "The Bank for International Settlements said the yen's decline is 'anomalous' and warned investors that the currency could rise sharply once market sentiment shifts. 'There is clearly something anomalous in the ongoing decline in the external value of the yen,' the BIS said in its annual report."
"'Tighter monetary policies would help to redress this situation, but the underlying problem seems to be a too firm conviction on the part of investors that the yen will not be allowed to strengthen in any significant way,' it said."
"The BIS said investors should remember that the yen rose 10 pct against the dollar in the space of 10 days in 1998, inflicting sizeable losses on those involved in the carry trade business."
"It said there should also be a greater willingness to let the yuan rise, although it recognised that this will pose considerable internal challenges to the Chinese authorities."
"The dollar may also need to decline further, it said. 'If global trade imbalances need to be resolved, a further and perhaps substantial decline in the dollar might be part of the adjustment process,' it said."
"The BIS said the structure of the economy in Japan, China and the US is fuelling global current account imbalances. 'The problem at the moment is that the allocation of resources in all three countries has been moving resolutely in the wrong direction,' it said."
"It said mounting global inflation pressures and persistent current account imbalances would seem to call for further interest rate increases. In particular, the Bank of Japan should continue raising rates now that the potential for a dangerous deflationary spiral has been much reduced."
"'The fact that the economy seems to be growing robustly, and that capital outflows from Japan might be having unwelcome effects elsewhere in the world, provides further arguments for supporting the suggestion that the Bank of Japan should continue to normalise interest rates gradually,' it said."
"Prices of virtually all assets have been on an upward trend since the middle of 2003 and the market reaction to good news may now have become 'irrationally exuberant,' it said."
"'Apparently, the observed resilience of markets to successive shocks has increasingly encouraged the view that lower prices constitute a buying opportunity. The danger with such endogenous market processes is that they can, indeed must, eventually go into reverse if the fundamentals have been overpriced,' it said."
"The market volatility of May-June 2006 and Feb 2007 is a reminder that markets can be unsettled by negative surprises on inflation and growth, it said. 'While on these occasions there was no pass-through to the real economy, such an impact cannot be ruled out in the future,' it said."
From Reuters. "Gold prices slipped on Monday on bearish sentiment, but closed off session lows as crude oil prices recovered, and trade was quiet ahead of a slew of economic indicators scheduled this week, dealers said. 'As far as the metals are concerned, it's really lackluster,' Jonathan Jossen, an independent trader, said from the COMEX floor in New York."
"Spot gold fell as low as $648.70 an ounce and was quoted at $650.60/651.20 by 3:21 p.m. EDT, against $653.60/655.10 late in New York on Friday. Gold for August delivery on the New York Mercantile Exchange's COMEX division settled down $2.30 at $654.70 an ounce, dealing from $651.60 to $657.70."
"Jossen said investor sentiment was largely bearish because of a host of factors including a higher interest-rate environment, weaker oil prices and sagging stock markets."
"Dealers said the market would watch the heavy U.S. economic calendar this week, which includes key housing, consumer and gross domestic product data and the Federal Reserve's meeting."
"Jossen said volume was light ahead of the busy economic calendar this week. New home sales and consumer confidence reports are due on Tuesday, with durable goods orders data on Wednesday, a gross domestic product report and the Federal Reserve's rate-setting decision on Thursday. Personal income data is to be released on Friday."
"Goldman Sachs said in a research note it had reduced its forecast for gold prices over the next year by $25 to $725 following a more neutral stance on the dollar. 'However, GS Research remains bullish on gold prices despite a relatively modest dollar depreciation forecast. They believe gold is currently undervalued and physical demand is likely to remain supportive,' the investment bank said."
"In other metals, platinum fell to a one-week low of $1,277 an ounce after rising as high as $1,297. It was last quoted at $1,280/1,284, versus $1,296/1,301 late in New York on Friday, when it rallied to a two-week high of $1,301 on the risk of supply disruptions in South Africa."
"Silver was at $12.855/$12.885, versus $13.04/$13.08 its previous finish late in the U.S. market, while palladium was down $5.50 an ounce at $367.50/$371.50."
"'Tighter monetary policies would help to redress this situation, but the underlying problem seems to be a too firm conviction on the part of investors that the yen will not be allowed to strengthen in any significant way,' it said."
"The BIS said investors should remember that the yen rose 10 pct against the dollar in the space of 10 days in 1998, inflicting sizeable losses on those involved in the carry trade business."
"It said there should also be a greater willingness to let the yuan rise, although it recognised that this will pose considerable internal challenges to the Chinese authorities."
"The dollar may also need to decline further, it said. 'If global trade imbalances need to be resolved, a further and perhaps substantial decline in the dollar might be part of the adjustment process,' it said."
"The BIS said the structure of the economy in Japan, China and the US is fuelling global current account imbalances. 'The problem at the moment is that the allocation of resources in all three countries has been moving resolutely in the wrong direction,' it said."
"It said mounting global inflation pressures and persistent current account imbalances would seem to call for further interest rate increases. In particular, the Bank of Japan should continue raising rates now that the potential for a dangerous deflationary spiral has been much reduced."
"'The fact that the economy seems to be growing robustly, and that capital outflows from Japan might be having unwelcome effects elsewhere in the world, provides further arguments for supporting the suggestion that the Bank of Japan should continue to normalise interest rates gradually,' it said."
"Prices of virtually all assets have been on an upward trend since the middle of 2003 and the market reaction to good news may now have become 'irrationally exuberant,' it said."
"'Apparently, the observed resilience of markets to successive shocks has increasingly encouraged the view that lower prices constitute a buying opportunity. The danger with such endogenous market processes is that they can, indeed must, eventually go into reverse if the fundamentals have been overpriced,' it said."
"The market volatility of May-June 2006 and Feb 2007 is a reminder that markets can be unsettled by negative surprises on inflation and growth, it said. 'While on these occasions there was no pass-through to the real economy, such an impact cannot be ruled out in the future,' it said."
From Reuters. "Gold prices slipped on Monday on bearish sentiment, but closed off session lows as crude oil prices recovered, and trade was quiet ahead of a slew of economic indicators scheduled this week, dealers said. 'As far as the metals are concerned, it's really lackluster,' Jonathan Jossen, an independent trader, said from the COMEX floor in New York."
"Spot gold fell as low as $648.70 an ounce and was quoted at $650.60/651.20 by 3:21 p.m. EDT, against $653.60/655.10 late in New York on Friday. Gold for August delivery on the New York Mercantile Exchange's COMEX division settled down $2.30 at $654.70 an ounce, dealing from $651.60 to $657.70."
"Jossen said investor sentiment was largely bearish because of a host of factors including a higher interest-rate environment, weaker oil prices and sagging stock markets."
"Dealers said the market would watch the heavy U.S. economic calendar this week, which includes key housing, consumer and gross domestic product data and the Federal Reserve's meeting."
"Jossen said volume was light ahead of the busy economic calendar this week. New home sales and consumer confidence reports are due on Tuesday, with durable goods orders data on Wednesday, a gross domestic product report and the Federal Reserve's rate-setting decision on Thursday. Personal income data is to be released on Friday."
"Goldman Sachs said in a research note it had reduced its forecast for gold prices over the next year by $25 to $725 following a more neutral stance on the dollar. 'However, GS Research remains bullish on gold prices despite a relatively modest dollar depreciation forecast. They believe gold is currently undervalued and physical demand is likely to remain supportive,' the investment bank said."
"In other metals, platinum fell to a one-week low of $1,277 an ounce after rising as high as $1,297. It was last quoted at $1,280/1,284, versus $1,296/1,301 late in New York on Friday, when it rallied to a two-week high of $1,301 on the risk of supply disruptions in South Africa."
"Silver was at $12.855/$12.885, versus $13.04/$13.08 its previous finish late in the U.S. market, while palladium was down $5.50 an ounce at $367.50/$371.50."
# posted by Ben Jones @ 2:10 PM 
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"The Bank for International Settlements said the yen's decline is 'anomalous' and warned investors that the currency could rise sharply once market sentiment shifts.
vs.
"the Bank of Japan should continue raising rates now that the potential for a dangerous deflationary spiral has been much reduced."
Hmm....
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vs.
"the Bank of Japan should continue raising rates now that the potential for a dangerous deflationary spiral has been much reduced."
Hmm....
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