Dollar struggles on expectations for September Fed action

The dollar came under light pressure against a basket of major currencies in Asia on Monday, with traders speculating the Federal Reserve may offer more stimulus next month in the face of an uncertain growth outlook.

While Fed Chairman Ben Bernanke gave no details of further action to boost the U.S. recovery at an eagerly awaited speech on Friday, he said the central bank would extend its September policy meeting to two days to consider its options.

“If the economy were to fall into recession, we believe the Fed would initiate another round of quantitative easing,” Michael Carey, chief economist for North America for Credit Agricole, said in a note to clients.

He added, however, that the hurdle is high for introducing more monetary easing due to a rise in core inflation.

“Hence the trade-off for the policy, between boosting activity and employment and generating inflation or other distortions in asset markets, has become less attractive,” Carey said.

Market expectations for a fresh round of bond buying by the Fed had eased in the leadup to the central bank’s annual symposium at Jackson Hole, Wyoming, so the fact that Bernanke did not announce any immediate action was not a major disappointment, traders said.

This leaves the focus squarely on upcoming data including the influential non-farm payrolls reports due on Friday as well as data on U.S. personal spending and manufacturing for clues about the health of the world’s largest economy.

The dollar index last stood at 73.789, not far from 4-month lows around 73.421 and off Friday’s peak of 74.464.

“The fall in the dollar on Friday was also caused by a rise in euro/Swissie, which pushed euro/dollar higher,” said a trader for a Japanese bank, adding that a further rise in the pair could put more pressure on the greenback.

The euro was up 0.3 percent at 1.1739 francs on Monday, nearing resistance at 1.1810, a 76.4 percent retracement of the euro’s drop from an early July peak of 1.2346 francs down to a record low of 1.0075 hit on EBS in early August.

There is more resistance at 1.1894, the next major peak on charts.

Against the yen, the greenback traded at 76.70 yen, recoiling from a recent high around 77.69 but keeping well above the record low plumbed earlier this month at 75.941 yen.

The euro briefly popped above $1.4500, building on Friday’s 0.8 percent rally, before losing a bit of steam ahead resistance at its August 17 high of $1.4518 and July 27 peak of $1.4537, to stand at $1.4485.

A customer trader for a major Japanese bank said the euro may be poised for a further rise in the near term, possibly to as high as $1.4580, its early July peak. The market’s view of the euro has not changed in any positive way, and its latest firmness is more a reflection of dollar weakness, investors say.

“For anyone not present for Ben Bernanke’s appearance on Friday and just looking at the day’s equity and FX price action, they could be forgiven for believing that the Fed chairman had unleashed QE3,” BNP Paribas analysts wrote in a client note.

The dollar muscled in on the Swiss franc, however, which came under broad pressure after Swiss bank UBS threatened on Friday to charge clients a fee on deposits, aiming to discourage them from using some accounts to hoard the safe-haven currency because of financial market volatility.

The dollar was up 0.34 percent at 0.8098 francs, having hit a one-month high around 0.8152 francs on Friday.

Concerns that the global economy would fall back into recession and fears that the euro zone’s sovereign debt crisis could spread to the region’s banking system have sent currency investors scurrying to the safety of the Swiss franc and yen.

This has prompted both the Swiss and Japanese authorities to act in recent weeks to temper the strength of their respective currencies.

While the Swiss National Bank said it was not involved in UBS’s decision to consider imposing a fee, traders said the move posed a fresh hurdle for franc bulls.

The Australian dollar extended last week’s gains, having risen against a broadly weaker greenback after Bernanke kept the door open to more policy action to stimulate the U.S. economy.

The Aussie last traded up 0.4 percent at $1.0610 hovering at a 3- week peak.

Trading on Monday is expected to be subdued with British markets closed for a holiday and New York likely to be affected by tropical storm Irene, downgraded from a hurricane.

“It’s probably going to be one of those days where we get fairly tight trading,” said Grant Turley, a currency strategist at ANZ.

Spot gold falls 1 percent on lack of detailed Fed plan

Spot gold fell more than 1 percent on Monday, reversing a 3.2-percent rally in the previous session, as investors faced with uncertainties on the U.S. Federal Reserve’s stimulus plans decided to take some money off the table.

U.S. Federal Reserve Chairman Ben Bernanke on Friday stopped short of detailing further action to boost the economy but said the central bank would consider what more it could do to fight high unemployment.

“The market didn’t really get much insight as to what the Fed may or may not do,” said Darren Heathcote, head of trading at Investec Australia.

“It is an opportunity to take some profit off the table after the run-up, given that we are not going to get anything from the Fed for a while.”

Cash gold fell as much as 1.2 percent to $1,806.29 an ounce, before recovering slightly to $1,815.59 by 0249 GMT. Prices lost more than 1 percent last week, snapping seven straight weeks of gains.

U.S. gold gained 1.2 percent to $1,819.

Technical analysis suggested that spot gold could rise to $1,838.29 on Monday, said Reuters market analyst Wang Tao.

Speculators cut their longs in U.S. gold futures and options last week for a third straight week even as bullion prices shot up above $1,900, the data from the U.S. Commodity Futures Trading Commission showed.

Echoing the cut in longs in futures and options, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, recorded an outflow of nearly 60 tonnes last week.

“There was profit-taking around $1,830 level, and people are still watching the dollar, U.S. data and the euro zone’s debt issue,” said a gold dealer in Hong Kong, adding that many physical market participants have retreated to the sidelines waiting for a clear direction in an unusually choppy market.

The U.S. dollar was under pressure against a basket of major currencies in Asia on Monday, with traders expecting the Federal Reserve to offer more stimulus next month in the face of an uncertain growth outlook.

Market participants are eyeing data due later in the day including U.S. personal income and consumption, Mid-west manufacturing and pending home sales, for clues on the status of the world’s largest economy.

“Investors will remain nervous and gold is likely a beneficiary as a result,” said Investec’s Heathcote, “I can’t see it falling much below $1,700 if at all, with a likelihood of pushing higher in the days ahead if we don’t get any good news.”

Global Watch: Asia stocks up on Fed hopes; Irene spares NYC

Asian stocks rose on Monday morning, after the recent sell-off, while the dollar struggled after U.S. Federal Reserve Chairman Ben Bernanke left the door open for further action to stimulate the economy and fight high unemployment.

Gains in equities were also supported by firmer U.S. stock futures after Hurricane Irene, downgraded to tropical storm status, caused less damage than feared in New York City.

Bernanke, speaking at an annual Fed conference at Jackson Hole, Wyoming on Friday, gave no details of further action to boost the U.S. recovery but said the central bank’s policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to investors.

Given the dysfunctional nature of the political climate on both sides of the Atlantic and the diminishing probability of viable longer-term fiscal policies, monetary policy is the only viable short-to-medium-term policy response, said Viktor Shvets, regional strategist at Samsung Securities in Hong Kong.

The MSCI Asia Pacific ex-Japan index rose 2.2 percent led by cyclical sectors such as materials and energy.

The index is headed for its worst month since October 2008, as a U.S. sovereign rating downgrade by Standard & Poor’s and increasingly worrisome developments on the European debt situation deterred nervous investors.

South Korea’s KOSPI, the Asian market considered to be the most geared to a global economic recovery, led gains and was up 2.8 percent.

Japan’s Nikkei edged up 0.9 percent on subdued volumes ahead of a leadership election in the ruling party that will decide the country’s next prime minister.

The election itself is unlikely to have much market impact with investors focusing instead on the slew of economic data from the United States this week including the influential non-farm payrolls data due on Friday.

“U.S. jobs data is going to be much more important for setting the tone in the market, so people are looking at it for mid-term investment decisions,” said Kazuhiro Takahashi, general manager at Daiwa Securities.

A Reuters poll showed economist forecast non-farm payrolls may rise by 80,000 in August while unemployment may stay at 9.1 percent.

 

DOLLAR WOES

Stubbornly high unemployment coupled with the possibility of more monetary stimulus in the United States kept the dollar under pressure in Asian trading.

The dollar index, a measure of its strength against a trade-weighted basket of currencies, last stood at 73.755, having fallen from Friday’s peak of 74.464. Against the yen, the greenback traded at 76.69 yen, recoiling from a recent high around 77.69.

The U.S. currency, however, outperformed the Swiss franc, which came under broad pressure after Swiss bank UBS on Friday threatened to charge clients a fee on deposits, trying to discourage them from using some accounts to hoard the safe-haven currency because of financial market volatility.

In commodity markets, Brent crude fell below $111 per barrel on Monday as oil refiners and terminals along the U.S. east coast weathered the worst of Hurricane Irene, easing fears of fuel supply disruptions in the world’s top oil consumer.

NYMEX crude for October delivery was flat.

Spot gold fell 0.5 percent to $1,821.99 an ounce retreating slightly from rally of more than 3 percent in the previous session.

CME Group Says Markets To Open As Normal On Monday Following Hurricane

Futures markets that trade at the CME Group will open as normal, following the passing of Hurricane Irene, which hit the New England area over the weekend.

Those markets include the precious and base metals futures contracts.

“CME Group plans to open all electronic and open outcry markets per each product’s regular schedule. All IT systems and trading floors remain operational and will be available to customers and market participants as planned,” said Chris Grams, associate director, Corporate Communications for the CME Group.

The CME Group is the parent for the Comex division of the New York Mercantile Exchange. There were concerns that Hurricane Irene would cause enough damage to the New York City region and prevent businesses from opening. The storm, which first passed through North Carolina, came ashore again in New York as a tropical storm on Sunday, bringing salty floodwater into Manhattan, home to the Comex building.

Strategy for Commodity Market today

Commodities have been swirling as much as the Indian stock market. So what is that one strategy that can fetch you gains or at least secure them from the space?

Gold & Silver

Gold futures corrected sharply last week on account of the increase in margins at the Commex. We believe that this is a buying opportunity and someone in the domestic market can buy at Rs 27,500 per 10 grams keeping a target of Rs 27,900 per 10 grams and stop loss of Rs 27,350 per 10 grams.

On silver,  has lagged gold in this entire move. It has got a lot of catch up to do. So any dips towards Rs 64,200-64,300 per kg levels could be an ideal level to buy silver with a possible stop of Rs 63,500 a kg and a target of Rs 67,000 a kg in the coming days.

Silver continues to remain positive. Keeping this mind one can look at going long near Rs 63,000-63,500 per kg is the range. Keeping that as a stop loss one should buy for a target price of Rs 64,500/kg.

Crude

We suggests investors to buy crude oil on MCX September contract at Rs 3,900 a barrel with a stop loss at Rs 3,860/barrel for a target of Rs 4,030 per barrel. Almost in unison, we also  advice to buy oil with stop loss below Rs 3,890 a barrel keeping a target of Rs 4,000 a barrel and Rs 4,020/barrel on the higher side mainly on tension if the hurricane threats.

Copper

Investors can buy copper November contract at Rs 419 per kg with stop loss at Rs 416 per kg for a target of Rs 426/kg. We suggest investors to look at going short in copper near Rs 418 per kg keeping a stop loss above Rs 420/kg. On the downside I expect copper to come in the range of Rs 412-414 per kg.

 

Source: www.indothai.co.in

US markets move higher on Bernanke’s optimistic tone

The US market closed higher on Friday and managed to break the four week losing streak. Though the indices traded sideways in early trade but finished sharply higher at the end on Bernanke remarks. Fed Chairman Bernanke offered no new measures to stimulate the economy but in a widely anticipated speech noted the strength of the US economy and said that recent shocks have not fundamentally altered the economy. Bernanke also did not announce any new measures to stimulate the economy and focused his comments on the fiscal policy and not on monetary policy. He stated that the Federal Open Market Committee would consider its options at its next meeting in late September.

The market wavered after the gross domestic product was revised lower in the second quarter and the consumer confidence index was near the lows last seen in May 1980. Investors feel that the US economy is on the brink of recession as consumer confidence declined and retail inflation stays ahead of market expectations. Many segments of the economy have not recovered since 2008 and continue to languish for more than ten quarters in a row.

The Dow Jones industrial average gained 134.72 points, or 1.21 percent, to 11,284.50. The Standard and Poor’s 500 closed higher by 17.53 points, or 1.51 percent, to 1,176.80, while the Nasdaq composite gain 60.22 points, or 2.49 percent, to 2,479.85.

The Indian ADRs closed mixed on Friday, Infosys Technologies was up by 0.75%, ICICI Bank was up by 0.21% and Dr Reddy’s Lab was up by 0.12%. On the flip side, Sterlite Industries was down by 0.17% and MTNL was down by 0.09%.

Maruti, Wockhardt and Allahabad Bank to be in limelight today

Maruti Suzuki, India’s largest carmaker, is gearing up for a major product onslaught with the launch of 15-20 new vehicles in five years. To remain competitive and protect market share, the auto giant will continue to focus on low-cost vehicles, with 70-80% of its future offerings likely to be in the small car segment, including facelifts and variants. Of the new products planned, five are in advanced stages of development. The company is likely to roll out sub-4 meter Swift Dzire at the 2012 Auto Expo in Delhi. This will be followed by a multi-purpose vehicle based on the R-III concept, an A Star facelift, Ritz backlift, and next generation Alto 800 by early 2013. The company will invest Rs 1,000-1,500 crore on product development, including its upcoming R&D unit at Rohtak, over the next three-five years.

To increase its international footprint, state-run Allahabad Bank is mulling over opening overseas branches in four Asian cities. The bank has approached RBI for four new branches one in Singapore, another in Dhaka and other two in Shanghai and Kowloon in Hong Kong. However, the Reserve Bank of India (RBI) is yet to give a go-ahead on the proposal. Presently, the Kolkata-headquartered bank has its sole overseas branch operational in Hong Kong and also has a representative office in mainland China’s Shenzen. The bank is planning to augment its capital base in the last quarter of the current fiscal, but is yet to decide about the component to be raised and the route to adopt. The bank is targeting a higher-than-industry credit growth of 24-25 percent for the fiscal, which demands capital augmentation.

Drug firm Wockhardt plans to launch 12-15 products in the US market this fiscal and also increase its reach in the European market. The company received 7 abbreviated new drug applications (ANDA) approvals this year. The company has plans to launch 12-15 products in the US market during the financial year 2011-12. In US, the company has an excellent range of existing products and expects to add a number of new products in the coming year. Currently, the company markets over 60 products in the US. The company, however, did not specify the details of the products that it would launch this fiscal. The company’s sales during 2010-11 exceeded $225 million for the first time in the US. Apart from more product launches in the US, Wockhardt also plans to spread its reach to the entire European region.

Stock Watch: Sesa Goa,ONGC,HUL

Vedanta Group firm Sesa Goa would stop mining in Karnataka’s Chitradurga with immediate effect, following the Supreme Court’s order banning mining in Chitradurga and Tumkur districts. It will adversely affect to some extent the performance of the company. The annual permitted capacity of the said mine (in Chitradurga) at present is 6 million tones. The apex court had extended the ban on mining to Tumkur and Chitradurga districts, while acting on a recommendation by its expert panel for halting extraction of iron ores in the two districts of the state. Mining in Bellary region had already been banned by the court on July 29. The Central Empowered Committee in its recommendations to the bench on August 19 said the mining operation was going on recklessly and in an environmentally unsustainable manner with the prime objective to exploit the iron ore mines merely for short-term gains. Sesa Goa, which has produced 18.8 million tonnes of iron ore in the last fiscal, had said earlier that ban on mining in Chitradurga will affect its gross revenues by up to 15 percent.

State-owned Oil and Natural Gas Corporation (ONGC) is likely to start oil and gas production from Krishna-Godavari basin field GS-15, off the Andhra coast, next month. While production from some oil wells in the GS-15 field is set to commence from September, ONGC has also drawn up plans to initiate production from its G-1 marginal field in the KG Basin from July, 2012. ONGC has asked the Petroleum Ministry to identify users for the gas and approve a price of $ 4.75 per million British thermal units. About 0.19 million standard cubic metres per day of gas would be available for sale from September. The gas availability would go up to 1.52 mmscmd from July next year (subsequent to the G-1 field coming onstream) and to 1.72 mmscmd in 2013-14. ONGC cited the Oil Ministry’s gas pricing order, which had fixed a base price of $4.50 per mmBtu for gas from the KG Basin and given an additional $0.25 per mmBtu if the gas was coming from offshore fields, to demand a gas price of $4.75 per mmBtu.

Tata Chemicals accused Hindustan Unilever (HUL) of violating the professional code of business and indulging in smear campaigns against competition, as the rivals fight for supremacy in the water purifier segment. On the other hand, HUL, which makes Pureit brand of water purifier, hit back by saying Tata Chemicals makes ambiguous and misleading claims about its product Tata Swach. Claiming that advertising industry watchdog ASCI has upheld its complaint against leaflets circulated by HUL, Tata Chemicals said the rival was denigrating its product. Violating the professional code of business, Pureit, the water purifier brand from the Hindustan Unilever, had been misleading consumers through persistent smear campaigns against competition, Tata Swach, the water purifier from the house of Tatas, stated. The company said the Advertising Standard Council of India (ASCI) through Consumer Complaints Council (CCC) directed HUL to withdraw leaflets from the market that had negative claims against Tata Swach. The CCC considered the technical data submitted by Tata Swach and concluded that the statement made in the leaflet circulated by Pureit denigrates Tata Swach.

 

Source: www.indothai.co.in