-- Posted Wednesday, 17 September 2008 | Digg This Article
| Source: GoldSeek.com
GENERAL MARKET CONDITIONS/FUNDAMENTAL FACTOR
FEDERAL RESERVE KEEPS INTEREST RATES UNCHANGED AT 2%
The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for an immediate cut after Lehman Brothers Holdings Inc.'s bankruptcy shook markets worldwide. The Fed did signal it will consider a reduction in the future by acknowledging in its statement that strains in financial markets are increasing. The central bank also said that employment is weakening and export growth is slowing, and dropped a reference to elevated inflation expectations.
The Fed has shown that it will try to solve the crisis by injecting liquidity and increasing the quantity of money, not by lowering the price of money. Highly liquidity is inflationary in nature and the Fed will have to raise interest rates in the second quarter of 2009.
US considers $85bn AIG rescue
US authorities were considering a deal to take control of AIG in return for an $85bn loan aimed at staving off a collapse of AIG. Under the plan, the authorities would receive equity warrants giving them a 79.9 per cent stake in AIG. In return, the insurer would receive a bridge loan of $85bn to keep it afloat until it could dispose of billions of dollars in assets. The issuance of the warrants to the government is designed to prevent existing shareholders from profiting from a rescue of the company, which has been hobbled by the losses on complex securities backed by mortgages and other assets.
Our View: Protectionist policies followed by the Federal reserve will only speed up the long term collapse of paper assets. The current fall in commodities is a part of and parcel of a long term bull rally which can last for a few more months. If the Fed rescues AIG then the signals will be negative for long term inflows into US economy. Central banks diversification away from US dollars will only increase. Even the sovereign wealth funds (SWF) will be hesitant to invest in US dollar denominated assets.
INDIAN RUPEE UPDATE - RBI Announces Market Measures
(a) Forex Market
In the light of current developments in the foreign exchange markets, as on some previous occasions, the Reserve Bank will continue to sell foreign exchange (US dollar) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps. The Reserve Bank would either sell the foreign exchange directly or advise the bank concerned to buy it in the market. All the transactions by the Reserve Bank will be at the prevailing market rates and as per market practice.
(b) Interest Rates on FCNR (B) Deposits
Currently, the interest rate ceiling on FCNR (B) deposits of all maturities has been fixed at Libor/Euribor/Swap rates for the corresponding maturities minus 75 basis points for the respective foreign currencies. In view of the prevailing market conditions, it has been decided:
• to increase, with immediate effect, the interest rate ceiling on FCNR (B) deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates minus 25 basis points.
(c) Interest Rate on NR(E)RA Deposits
Currently, the interest rate ceiling on NR(E)RA for one to three years maturity should not exceed the Libor/Euribor/Swap rates for US dollar of corresponding maturity. In view of the prevailing market conditions, it has been decided:
• to increase, with immediate effect, the interest rate ceiling on NR(E)RA deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 50 basis points.
(Source: www.rbi.org.in)
Effect on the rupee: RBI intervention will prevent the rupee from major weakness. Rupee should open stronger and gain to 46.40 and 46.00 against the US dollar. Upside will be limited to 47.12 and 47.25 in the event of further weakness. Forward premiums should trade in inverse direction to the rupee. For NSE rupee traders we prefer buying October end rupee future and selling November end rupee futures.
MARKETS TODAY
Federal reserve meeting is over. Gold, silver, copper and crude oil are in a neutral zone. Fridays close will be very crucial for all of them.
COMEX COPPER DECEMBER
Intra day copper needs to break $319 and $326.80 to be in a bullish zone. Failure to break $319 will result in a fall to $303 and $295.40. In the short term LME copper (3 months ) is bearish below $7300. Neutral Zone.
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Chintan Karnani. Website www.insigniaconsultants.in
-- Posted Wednesday, 17 September 2008 | Digg This Article | Source: GoldSeek.com
