Thursday, October 6, 2011

HSBC cut growth forecasts for Asian economies

Analysts at HSBC reduced its 2011 and 2012 economic forecasts for the most of the Asian economies – Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. The specialists revised down their 2012 growth estimates for Japan and New Zealand.

As the reasons for such revision the bank cited the potential decline in exports due to lower demand in indebted Europe and economically weak United States, as well as falling stocks and currencies.  

The predictions for China, India, Australia and the Philippines remained unchanged. Chinese GDP is seen adding 8.9% this year and 8.6% the next. According to HSBC, Chinese strength may help to ease pressure on other Asian economies.

Specialists at Standard Chartered think that in case of another financial crisis Asian central banks will be able to save the region by monetary stimulus and get out of any deep recession. At the same time, the economists say that Asia along isn’t able to remove such threat of the whole world.

published by FBS Holdings © 2011

The Bank of England Increased Asset Purchases

The Bank of England has surprisingly increased the amount of asset purchases by 75 billion to 275 billion pounds. The analysts burst out with comments on this point.

BNP Paribas: there will be more QE in the coming months.

Deutsche Bank: pound will drop to $1.50 and will stay under pressure until the Federal Reserve hints at QE3.

Commerzbank: the size of QE2 shows that the BoE is really concerned with the nation’s economic situation. The specialists say that sterling’ slump won’t be as big as it was when the first round was introduced. The bank doesn’t see any inflationary risks. Commerzbank recommends being short on GBP/USD and expecting EUR/GBP to strengthen to 0.88.

Morgan Stanley: bearish outlook for British currency as the market was expecting QE2 not earlier than in November. GBP/USD is on its way down to $1.5175/1.5125.

Capital Economics: the threat of recession in Britain is bigger than the one of inflation. The analysts doubt that the measure will manage to improve economic outlook.  

Danske Bank: the increase in the amount of purchases it bigger that the bank projected. The pair EUR/GBP is on its way up to 0.8750.

daily eurgbp 16-51

Chart. Daily EUR/GBP
daily gbpusd 16-55

Chart. Daily GBP/USD

published by FBS Holdings © 2011

Wednesday, October 5, 2011

Gold's New Volatility in Pictures

Gold's New Volatility in Pictures
by Adrian Ash
Wednesday, 5 October 2011

Three charts showing just how violent the gold price has become...

ONLY 12 MONTHS AGO, the gold price was so placid – quietly making new record highs above $1300 and then $1400 per ounce – that volatility in its daily swings hit the lowest level in half-a-decade.

Hardly the stuff of mania. And it only made buying gold a simpler decision for new and existing investors, especially those borrowing money to do it on the derivatives market. Whereas this summer's surge to (and sharp drop from) $1920 an ounce has already thrown a fat chunk of "hot money" out of the trade.

As you can see, leveraged speculators are fleeing the gold futures and options market at the fastest pace since Lehman Brothers blew up in Sept. 2008. Already shrinking by 40% since the new record peak of start-August, their "net long" betting on gold prices (simply the number of bullish minus bearish contracts) has crashed to barely 600 tonnes equivalent – the smallest level since mid-2009, and a level first reached at the tail-end of 2005.

Now, whichever came first – chicken or egg, price drop or hot-money flight – the end result so far this autumn is a jump in price volatility last seen at (you guessed it) Lehman Brothers' collapse.

"Key characteristics of a safe-haven asset are low price volatility and minimal risk of
capital loss," notes the latest Commodities Weekly from French investment bank and bullion dealer Natixis.

"With gold price volatility doubling, and gold prices dropping by more than 10% in just three days [last week], these characteristics no longer apply to gold."

But this loss of what was apparently gold's "safe haven" status hasn't diminished demand. Quite the contrary in fact for physical gold buyers, both in Europe and the US but more critically in the world's No.2 consumer – and fastest-growing source of demand – China.

Reports from bullion bank and secure logistics contacts all point to a surge in gold buying from Asia, with large 400-ounce bars being sucked out of London for turning into kilo-bars in Switzerland to be shipped onto China. Price volatility still applies, however. With bells on.

If you've struggled over the last month with gold's new volatility, then pity buyers and sellers on the Shanghai Gold Exchange. Violence in the domestic Chinese gold price has been worse by one fifth than in US Dollar prices on the London Fix – still the global benchmark price almost 100 years after the end of Great Britain's imperial gold standard.

That's because London is still central clearing for the vast bulk of the world's gold, where it sits ready for shipping wherever else it will find a use. Increasingly, that somewhere else is China, even though it's now the world's No.1 mining producer each year. Chinese refineries lead new applications to produce London Good Delivery bars, the 400-ounce wholesale standard worldwide. Yet no Chinese-made bars should (as yet) have reached London's Good Delivery bullion vaults, despite their producers devoting themselves to gaining LGD accreditation. Because China's borders are closed to exports of gold.

This one-way traffic – into China – helped last year to plug the 360-tonne gap between China's world-beating mine output and it's galloping demand for gold. The huge volatility in Shanghai premiums over London gold is of course a function of the metal's underlying volatility. But it's clearly being extended by the logistical bottlenecks and delays that are guaranteed to hit this very physical trade, now trying to ship ever-more gold bullion from the other side of the world.

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

BMO Recommendations ahead of BoE and ECB meetings

There are 2 important central bank meetings on Thursday: the one of the Bank of England (with the rate and the amount of asset purchase facility released at 3:00 pm GMT+4) and the one of the European Central Bank (with the rate and the rate released at 3:45 pm GMT+4 and press conference at 4:30 GMT+4).

Analysts at BMO Capital Market note that there may be 4 possible combinations of the central banks’ decisions. Here they are:

-          BoE does nothing, ECB does nothing;
-          BoE increases quantitative easing, ECB does nothing;
-          BoE does nothing, ECB cuts rates;
-          BoE increases quantitative easing, ECB cuts rates.

According to the specialists, the last scenario represents the best trading opportunity. In such case the market may firstly react to the reduction of the interest rate differentials in favor of the UK and the single currency will decline versus British pound. 

However, investors will likely soon realize that the ECB’s action is meant to improve the situation in the euro area. As a result, the European bank equities and euro will advance. So, BMO recommends buying EUR/GBP on the dips, at 0.8550 stopping below 0.8500 and targeting 0.8700.

daily eurgbp 22-32
Chart. Daily EUR/GBP

published by FBS Holdings © 2011