Tag Archives: quantitative easing

Gold Set For Sixth Weekly Gain On Safe-Haven Bids

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets:

Main Trading Event Of The Day: CAD Employment Change @ 12:30 GMT

WHAT WE’RE WATCHING TODAY

Gold Set For Sixth Weekly Gain On Safe-Haven Bids

Gold added to big overnight gains to trade near its highest in almost four months today and was on track for a sixth straight weekly gain stoking safe-haven demand for bullion. Spot gold nudged up 0.3 percent to $1,338.20 an ounce after closing up 0.7 percent yesterday when it rose to a peak of $1,345, the highest since March 19. Gold has gained more than 1 percent this week so a sixth weekly gain would be gold’s longest winning streak since February/March when it had a similar run. Gold is getting a boost along with other safe-havens such as the Japanese yen and bonds, as European and U.S. stock markets fell on Thursday on investor fears over financial troubles at the family-owned holding companies behind Banco Espirito Santo. Geopolitical tensions in the Middle East and Ukraine also continued to support gold, seen as an alternative investment to riskier assets such as equities. In Asia, India surprised bullion markets by keeping the import duty on gold and silver unchanged at 10 percent in its fiscal budget, a move likely to limit overseas purchases by the second-biggest bullion consumer. Physical demand in other Asian countries was also weak due the recent jump in prices. In China, local prices have been on par with the global benchmark or at a discount, underscoring sluggish demand.

Dollar Heads for Worst Week Versus Yen Since April

The dollar headed for its biggest weekly decline versus the yen since April in advance of Federal Reserve Chair Janet Yellen testifying to lawmakers next week as traders cut bets the central bank will raise interest rates. A gauge of the dollar was set for its fourth weekly loss in five weeks as minutes of the Fed’s June meeting failed to provide additional revelations on the pace of rate increases and record-low volatility encouraged demand for higher-yielding assets. The Fed appears to be on the cautionary side despite data improving. With the current environment, where volatility remains low, the trend of carry trades remains in vogue and to a certain extent, the dollar is underperforming according to analysts. The dollar was little changed at 101.28 yen in Tokyo, having declined 0.8 percent this week, the most since the period ended April 11. The U.S. currency traded at $1.3601 per euro from $1.3609 yesterday. The yen appreciated 0.1 percent to 137.75 per euro after advancing to 137.50 yesterday, the strongest since Feb. 6.

Will BOJ Disappoint Again At Next Meeting?

Investors poured funds into Japan equities last year on the expectation of further easing measures from the central bank, but it appears that the Bank of Japan will disappoint again at its meeting next week. In April of 2013, the BOJ launched a massive quantitative easing program aimed at kick-starting Japan’s long-moribund economy. Investors pushed the Nikkei up more than 50 percent, partly on hopes that the central bank would deliver. So far, they have come away disappointed. Analysts say the central bank will likely let markets down again when it wraps up its policy on July 15. In addition to damping enthusiasm for the stock market, the delay in providing further stimulus may be weighing on efforts to revive the economy. Machinery orders data for May show core orders fell 19.5 percent from April, the worst monthly drop on record, disappointing expectations for an increase and wiping out hopes for a capital spending pickup to help drive economic growth. The BOJ believes it’s on course to boost inflation to its 2 percent target within the next two fiscal years.

That sums up today’s highlights! We hope you have a profitable day on the markets. Have a great weekend!

Dollar Rises Against Most Peers on Fed’s Tapering

And thus it begins! The Fed’s tapering of stimulus that is. After economists’ expectations were disappointed when the Fed refrained from tapering in its September and a government shutdown that threatened to blow up in the air the entire economy of the U.S., the Fed decided yesterday to lower its bond-purchasing budget to $75 billion.

Following the decision the dollar gained against most of its 16 major peers. Currencies, however, did not swing as much as traders anticipated as the Fed highlighted that it intents to keep borrowing costs low for longer. After a four-month slump against the dollar, the yen regained some of its strength yesterday. Japanese policy makers started their meeting early this morning which will decide the future of Japan’s Quantitative Easing into the new year. The euro, however, dropped before discussion regarding a planned banking union began at a summit of European Union leaders.

Many economists see the Fed’s decision to begin tapering now as an entryway into a more stable and normal monetary policy for the future.

At the end of its meeting yesterday, the Federal Open Market Committee announced that it would cut its QE programme from $85 billion to $75 billion, a commitment that promises to slowly remove the unprecedented stimulus set in place by the Fed Chairman Ben Bernanke to ease economic recovery from the worst crises since the 1930s recession.

Policy makers were also quick to assure the public that the benchmark rate would likely remain low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the goal of 2 percent. The rate for federal-funds has remained within the narrow range of 0 to 0.25 percent since the crisis hit the U.S. in 2008.

FOMC Minutes Cause Slide in Asian Stocks

The release of the minutes from the FOMC’s last meeting in late October drove Asian stocks down for a third day in a row and caused the China manufacturing gauge to slip more than expected on speculation that Quantitative Easing will be reduced “in coming months.”

With the prospect of stimulus tapering lessening demand of safe-haven assets, metal prices took a hit with Perseus (AS51) leading the decline of gold miners as it recorded a 10-percent drop. The producer of baby-care products Prince Frog International Holdings Ltd. dove 20 percent in Hong Kong, after it resumed trading following a suspension when a short-seller put the company’s accounting under scrutiny. The Japanese auto-maker Honda Motor Co. rose 3.4 percent as the yen fell, as over 80 percent of its business comes from abroad.

The Asian indices also recorded overall declines with the MSCI Asia Pacific Index falling 0.6 percent to 141.38 as of 2:38 p.m. in Hong Kong as only one of its ten industry drop avoided a slide. At the exclusion of the Japan Index which saw the Topic (TPX) gain 1 percent, the MSCI Asia Pacific Index fell 1.2 percent.

Hong Kong’s Hang Seng Index lost 0.4 percent, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 0.9 percent. China’s Shanghai Composite Index dropped 0.5 percent. China’s factory activity showed signs of decline in November to 50.4 form 50.9 in October in a preliminary gauge by the HSBC Holdings Plc and Markit Economics.

FOMC Meetings Rekindle Hopes of QE Tapering “in Coming Months”

The highly-anticipated minutes of the Federal Open Market Committee’s meeting of 29-30 October were released yesterday at 7 p.m. GMT in Washington impact the U.S. dollar positively in the foreign currency exchange markets as the report appears to confirm inspector speculation that the Fed will taper its $85 billion economic stimulus “in coming months.”

Home and Retail Sales data for October released earlier in the day showed improvement in the U.S. economy for October and the minutes state that the members of the FOMC “generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.”

Despite the ambiguity of the minutes’ key term “in the coming months,” stock and bonds fell at increased speculation that the Fed’s asset purchasing may slow soon than expected. The Standard & Poor’s 500 Index slid 0.4 percent to 1,781.37, as the profit on 10-year Treasury increased by 0.09 percent to 2.8 percent.

Economists reading the minute have interpreted the extensive discussion of the committee’s members on future guidance as another sing that the Quantitative Easing is drawing closer.

A great part of the minutes also focuses on ways to better clarify their plans for keeping interest rates near zero, but no definitive decision has been recorded.

Central Banks Easing The Way To The Bottom

The way out of the global financial crisis that set its talons into the global economy in 2008 has proven quite precipitous as nations race-not so as to be the first to climb out of it, as one might have expected, but to be the first to hit rock bottom, apparently.

The European Central Bank shocked the financial world last Thursday when it cut its refinancing rate to a record low of 0.25 percent amidst equally shocking low inflation rate, despite the euro’s climb to its highest level since 2011 in the preceding weeks. The rate cut that caused the euro to drop 1 percent against the US dollar in the very day is expected to restrain the euro at decidedly lower levels in the near future.

The ECB’s move, however, was not an isolated incident, but only one skirmish in the more general shock-therapy strategy central bankers across the globe seem to have adopted over the last year. On 11th September, the day of the ECB rate-cut announcement, Czech policy makers advised they would be weakening the koruna, intervening in the foreign exchange market for the first time in over a decade. New Zealand has also dropped hints about delaying rate increases in order to moderate the strength of its dollar, while Australia considered its currency to be lingering at “uncomfortably high” levels. And all this just in the current month.

Last month, the US put all major currencies through a roller-coaster ride as speculators tried to predict the future of the U.S. government’s quantitative easing programme and the limit of the country’s debt ceiling. Policy makers suspended governmental operations for over a fortnight with the Federal Reserve finally deciding not to begin curtailing its economic stimulus until further signs of growth in the economy.

Last spring, economists anticipated that the Bank of Japan would ease its cash flow, but none expected the $1.4 trillion monetary mega-stimulus that it scheduled for release over a span of less than two years.

Amidst this new era of “currency war,” as the competitive currency devaluation was termed by Brazil’s Finance Minister in 2010, and with inflation preventing further investments by its agonisingly slow pace, the International Monetary Fund has spoken about the prospect of downgrading the global economy to urge central bankers to refrain from weakening currencies as a means for boosting competitiveness.

Central Bankers Gone Wild?

The ripple effect of the 16-day U.S. government shutdown that made headlines around the world earlier this month has now started to make waves across the planet, showing the real weight of the dollar in the global economic pool.

Earlier this week the Bank of Canada spoke about the need of future interest-rate increase, avoiding the language it used in earlier decision concerning ‘gradual normalisation’, while the central banks of Norway, Sweden, and the Philippines decided yesterday to postpone raising their interest rates further into the future as well. The announcements bolster the Federal Reserves’ plan to delay the withdrawal of its stimulus plan until well into next year. But it is not just the big players who join the movement: from Hungary to Chile, emerging markets around the world have cut interest rates in the past two months.

With inflation and job growth in the industrial world stubbornly refusing to climb to higher levels and a weakening in developing nations, policy makers continue their path of monetary easing in an attempt to jolt global growth from its stagnant position. If recent economic history has taught us anything, however, it is that stimulus creates asset bubbles that play havoc on the markets when they finally burst. And the current bubble has already been inflated by drastic home-price increases across the globe and the MCSI World Index of developed-world stock markets dangerously inching towards its highest level since 2007.

Some economists warn that the current conditions of central bankers pumping liquidity into the markets and promising to keep interest rates down are not normal. Yet, such has been the environment for five years now, as monetary authorities have sought to protect global economy from deflation and have turned to quantitative easing as a means to expedite its recovery. But to what cost?

The financial rewards have so far been limited. The International Monetary Fund this month has clipped its projections for global economic growth from 3.1 to 2.9 percent for 2013, and from 3.8 to 3.6 percent for 2014. It also expects most central banks across wealthy nations to favour lower inflation rates which already fall below the 2 percent average.

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