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February 14, 2011

U.K Inflation fears lead investors to bet on rate rises

Filed under: Uncategorized — bigcapital @ 8:36 am
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U.K Inflation fears lead investors to bet on rate rises

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Published: February 13 2011 18:54 | Last updated: February 13 2011 18:54 – The Financial Times

LONDON – Hundreds of billions of dollars have exchanged hands this year in bets on when the next interest rate rises will be in the UK and eurozone, as volumes have surged in these markets because of the growing threat of inflation.

Financial markets are betting that the UK will be the first to raise rates in June, followed by the European Central Bank in September and finally the US Federal Reserve in December.

Rising food and commodity prices have prompted markets to bring forward expectations of rate rises, sparking the jump in volumes as inflation has become one of the biggest concerns for businesses, consumers and investors.

The increasing focus on inflation has also triggered a debate over the accuracy of these predictions, with opinions divided over how much faith investors should place in them.

Don Smith, economist at Icap, said: “The market forecasts are as good a guide as you will get. They are in a sense multibillion-dollar predictions because of the vast amount of money behind the trades that set them.”

Some strategists also argue that rate forecasts can be self-fulfilling, as central banks do not like to surprise markets.

However, John Wraith, fixed-income strategist at BofA Merrill Lynch, said: “Market rate expectations are useful indicators, but they only tell you the consensus market view at any given point in time. Circumstances change and so do they.”

Mr Wraith thinks rates in the UK, for example, may be delayed beyond June, as policymakers are more concerned about weak growth in spite of rising inflation, which at 3.7 per cent is nearly double the Bank of England’s inflation target. There is also a view that rises in fixed-interest mortgage rates and some company loan costs are in effect tightening monetary policy for the Bank of England, which means that rates may not have to be increased as early as the market expects.

However, most strategists say the markets are more accurate today than they were in the past, as the contracts – known as overnight index swaps in the UK and eurozone and Fed funds futures in the US – used to make the predictions are more widely traded with hundreds of banks and investment funds making bets.

Brokers say rough estimates show daily turnover has risen to about $200bn in Fed funds futures and to about $20bn in each of the UK and eurozone overnight index swap markets

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December 22, 2010

Moody’s Sees No Europe Defaults

 

MOODY’s SEES NO EUROPE DEFAULTS

LONDON –The euro zone “retains significant financial strength” and has the “resources, incentives, and political cohesion” needed to contain the sovereign debt crisis, Moody’s Investors Service Inc. said Tuesday.

“We believe that policymakers have sufficient resources and will use them as necessary to restore financial stability,” the ratings agency said in a report.

Moody’s said that all its euro-zone sovereign ratings with the exception of Greece are investment grade, reflecting its view that “the risk of a euro-zone sovereign default is very small.”

Beginning late October, euro zone sovereign bond markets have experienced a second wave of volatility this year, on worries about the health of sovereign borrowers and about proposals for a post-2013 crisis resolution mechanism that could penalize private lenders.

This prompted the European Central Bank to step up purchases of bonds issued by peripheral euro-zone members under its Securities Market Program.

Germany has resisted some ideas floated to deal with the crisis, such as increasing the size of European Financial Stability Facility, or issuing common euro-zone bonds.

Moody’s Investors Service said it doesn’t foresee defaults or maturity extensions on euro-area debt because the region will likely backstop weaker members, and reiterated that Portugal will likely stay investment-grade.

“Moody’s base-case scenario remains that over the medium term, no euro-zone country will suffer a payment default or otherwise impose losses on private-sector lenders through maturity extensions or other forms of distressed exchange,” the company said in a report today. “The collective willingness of the euro zone to support weaker members through the provision of liquidity will remain an important element of investor protection.”

 Its euro-zone sovereign ratings “reflect a range of factors including high intrinsic economic and financial strength and ready access to financial resources,” including those made available by other euro-zone members, Moody’s said.

FED EXTENDS DOLLAR LOAN PROGRAM WITH FOREIGN BANKS

WASHINGTON — The Federal Reserve on Tuesday extended a program set up during the European debt crisis to make it easier for foreign central banks to get access to U.S. currency to distribute to commercial lenders.

The Federal Open Market Committee said it’s extending, through Aug. 1, its U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank.

The swap arrangements, established in May, had been authorized through January.

Back in May, money markets were rattled by the strains in Greece, which subsequently received 110 billion euros of assistance through the International Monetary Fund and euro-zone nations. Since then, a similar package was arranged for Ireland, and there are worries that Spain and Portugal could need them as well.

The swap lines with the European Central Bank, the Bank of England, the Swiss National Bank and the the Bank of Japan will enable the central banks to conduct tenders of U.S. dollars in their local markets at fixed local rates for full allotment, similar to arrangements that had been in place previously, according to the Fed.

As the world’s reserve currency, the dollar is highly sought after outside the United States to settle trades — in commodity markets, for example.

 They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, the Fed said.

“It is a bond-bullish recognition that back-up liquidity facilities are still warranted in the current environment,” said analysts at CRT Capital.

December 1, 2010

China Approves Gold Fund Of Funds

Filed under: Uncategorized — bigcapital @ 9:15 am
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China Approves Gold Fund Of Funds
HONG KONG (MarketWatch) — China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.

 Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund, the first of its kind for mainland China, according to a statement posted on the Beijing-based fund provider’s website.

 The fund has been granted permission to invest outside of China under the Qualified Domestic Institutional Investor (QDII), the fund managers said in the statement.

 The fund will invest in gold-backed exchange-traded funds operated outside of China, though the fund provider’s statement didn’t specify which ETFs, or which markets, it was considering.

 Hong Kong launched its own gold-ETF earlier this month, back by bullion held at a government-run depository at the city’s international airport. See report on Hong Kong’s first locally backed gold ETF.

 The QDII scheme enables financial institutions to invest in overseas markets and is widely seen as a vehicle to allow capital outflows from China at a time when the currency is not freely traded, prohibiting China’s vast pool of savers from investing abroad.

 One-year yuan deposits at the Bank of China Ltd., for example, fetch 2.5%, with the People’s Bank of China having last hiked its policy rate by a quarter-point in October.

 However, cash kept in these savings accounts are actually losing purchasing power at a dramatic rate, as with consumer prices in October 4.4% higher than they were a year earlier, and with the inflation rate expected to hit 5% in December, according to estimates by Bank of America- Merrill Lynch.

 The state-run China Daily said Tuesday that the new gold fund was the first of it its kind to be available to mainland investors.

 More funds could be on the way soon, as several other fund providers have pending applications for similar products, seeking to tap rising interest among mainland Chinese investors for precious metals, the report said
-Market Watch-

November 16, 2010

Abu Dhabi investment fund eyes European deals-paper

Filed under: Uncategorized — bigcapital @ 9:11 am
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ABU DHABI, Nov 15 (Reuters) – Abu Dhabi’s fastest growing investment fund Aabar is eyeing three European deals worth 2 billion euros ($2.74 billion) after selling its stake in Banco Santander’s Brazil unit, its chairman said in remarks published on Monday.

Aabar, which recently delisted from the Abu Dhabi Securities Market (ADX), is looking at two infrastructure investments in Europe valued at between 500 million and 1 billion euros, Khadem al-Qubaisi told the Financial Times.

Aabar is also considering buying a “small stake” in a blue-chip telecoms company in Europe or the United States that could be worth 1.95 billion euros, he told the paper.

International Petroleum Investment Company (IPIC), the parent company of Aabar, considered buying up to 10 percent of BP after the then chief executive Tony Hayward made an approach, he said, but IPIC backed off after the UK oil company made clear it wanted investors to buy shares in the open market.

Aabar’s assets have grown to $13 billion and are expected to touch $15-$16 billion by end of next year with new deals, he said.

 

 

Oil-exporter Abu Dhabi is investing billions of dollars in industry, tourism, real estate and infrastructure to diversify its economy away from oil. Its investment funds are actively investing across asset classes globally. ($1=.7312 Euro)

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