Forex - Dollar off day lows but caution prevails ahead of Fed rate verdict

LONDON, Jan. 30, 2008 The dollar was off day lows amid early indications that the key US jobs report Friday may come in stronger than expected although caution ahead of the Fed's rate verdict later this evening kept the currency from rising too far.

According to payroll services firm ADP (NYSE:ADP) , the US economy added a surprisingly large 130,000 private sector jobs in January, suggesting that the official non-farm payroll figure may exceed the 58,000 expected. In December, it stood at 18,000.

'Indeed, following the ADP report, the risks to our own call now lie on the upside - we could easily see a 100,000 plus figure,' said Paul Ashworth at Capital Economics.

The news helped the dollar edge higher, having struggled in the 1.48 region against the euro earlier.

On the other hand, US GDP data which also came out around the same time, was decidedly weak. The first estimate of fourth quarter GDP came in at an annualised 0.6 pct, only half of consensus expectations of 1.2 pct and well down from the final estimate of 4.9 pct in the third quarter.

'The dollar showed a modestly negative reaction to the GDP report, but was overshadowed by the upside surprise in ADP employment,' said Michael Woolfolk at Bank of New York Mellon.

But that aside all eyes are on the Fed's rate verdict due at 7.15 pm GMT today.

Financial markets have priced in a large probability of the Fed delivering a half point reduction to take the Fed fund rate down to 3.00 pct from the current 3.50 pct, although this prospect has been slightly dented since the rally on equity markets this week, after some decent US data.

'When taken in consideration with the upwards surprises to durable goods, consumer confidence and ADP employment, the GDP report argues for a 25 basis point rate cut from the Fed this afternoon,' added Woolfolk at Bank of New York Mellon.

The Fed last week surprised markets by lowering its base rate by 75 basis points to 3.50 pct.

'As is usual, ahead of the Fed meeting, some doubts have started to creep in about exactly what the Fed will deliver,' said Paul Mortimer-Lee, head of market economics at BNP Paribas. (OOTC:BPRBF)

'While markets judge 50 basis points remains the most likely case, a number of commentators have noticed the rally in stocks ... this has led them to conclude that maybe 25 basis points is all the Fed need deliver,' said Mortimer-Lee.

Elsewhere, the pound weakened against the euro after Bank of England data revealed UK housing market activity remains weak, which will add to the pressure on the central bank to cut interest rates next week.

The BoE said mortgage approvals -- a good indicator of future housing demand -- fell to 73,000 in December, their lowest level since records began, down on November's 81,000 and well below expectations for 80,000.

'Today's data adds on to the series of weak UK economic releases of the past few weeks, reinforcing the case for a BoE rate cut next week,' said CIBC World Markets' Childe-Freeman.

Elsewhere in the release, the central bank found that net consumer credit during December was only 0.6 bln stg, down on November's 1.2 bln and the rolling 6-month average, also 1.2 bln.

The pound strengthened against the dollar though, supported not only by expectations that US interest rates will fall further and quicker than in the UK, but by the reappointment of Mervyn King as Bank of England governor, and Andrew Sentance as a Monetary Policy Committee member. Both are considered to be hawkish members of the rate setting MPC.

'Mervyn King's reappointment as Governor of the Bank of England for another five years is possibly a slightly hawkish development for the outlook for interest rates,' said Jonathon Loynes, chief European economist at Capital Economics.

Taiwan cbank to watch forex after Fed cut

TAIPEI: Taiwan’s central bank will watch the island’s foreign exchange market closely, a financial official said on Tuesday, after the Federal Reserve cut its key federal funds rate by 75 basis points in a surprise move.

The Fed’s move came after the Taiwan dollar closed at T$32.439 versus the US dollar, weaker than the previous close of T$32.348. The Taiwan currency had hit a one-week intraday low of T$32.500 earlier in the session after the island’s stocks had joined other regional markets, such as China and India, in falling sharply due to worries over a possible US recession.

Before the Fed’s cut, the Taiwan stock market had plunged 6.5 percent in its biggest daily drop in almost four years. Foreign funds sold T$19.597 billion ($604 million) in Taiwan stocks, the highest amount so far this month after four days of selling. That resulted in fund outflows, pushing the Taiwan dollar lower. reuters

PepsiCo anxious about commodity prices

PepsiCo Inc (PEP.N: Quote, Profile, Research) Chief Executive Indra Nooyi said on Wednesday commodity prices were a concern but the soft drinks and snacks giant would overcome the challenge.

"You just have to look at the prices of wheat and corn. Wheat prices have almost doubled in the last three years and there's no question that there's commodity inflation," she told Reuters at the annual meeting of the World Economic Forum.

"How do we intelligently navigate through this? Through a mix of productivity, pricing and intelligent procurement ... while we are concerned about commodity inflation, we feel pretty comfortable that we will find a way through it."

Energy companies’ exposures increase as commodity prices rise

Energy insurers and their clients have been warned that they could face bigger exposures as a result of sharp increases in commodity prices. In its Energy Market Review, Lloyd’s insurance broker Willis says that “superheated” prices for oil, steel, building material and contractor day rates is creating significantly increasing risks.

The spike in commodity prices has resulted in higher replacement cost valuations and much bigger potential for longer and costlier delays in the event of an accident, heightening business interruption exposures. The potential for more severe losses in the energy industry has therefore been enhanced at a time when many asset values remain unrevised for insurance purposes, Willis warns.

But following another benign hurricane season in the Gulf, energy insurance capacity has continued to grow. Willis expects that capacity for 2008 will grow by 10%-15% as a result of new start-ups entering the market, as well as increased lines being made available by existing energy insurers.

Willis says that energy insurance business is still profitable because rates are still relatively high by historical standards. That means that further rate reductions are a real possibility. For buyers, for the time being at least, energy insurance products are better value for money than at any time since 9/11, the broker says.

Phillip Ellis, chairman of Willis Energy says that although loss levels in the energy insurance sector have been low for two years, the situation could change rapidly. “While some [energy] companies are operating their assets in ways that are far superior to the past, for others the run of good luck is just that. It is very hard for us to accept that this run of low loss activity will continue indefinitely. Ultimately, something will break,” he warned the market.

Willis says that the energy industry is operating “at full tilt” with existing infrastructure being pushed to the limit and project activity at record levels. In addition, energy companies are increasingly investing in more risky, hostile territory, deploying sophisticated untested technology.

The Willis report points out that business interruption is an increasingly critical element in the energy insurance portfolio. A recent incident in the Middle East, which resulted in a physical damage loss of around US$100 million would have resulted in a claim for BI of as much as US$600 million had the exposure been insured. From an insurer’s point of view, they may not be receiving adequate premium for the actual exposure; from the client’s perspective, they are may be underinsured.

Looking to the future, Willis predicts that oil and commodity prices are unlikely to fall so far that levels of high investment can’t be sustained, and pressure taken off supply chains.

In the meantime, Ellis urged clients to continue to re-examine their risk exposures and asset valuations, in order to make sure that they remain in a position to be properly indemnified by insurers in the event of more severe losses in the future. He also urged brokers and underwriters to “innovate and improve our offerings to such an extent that our clients’ appetite for them continues to grow.”

Commodity prices extend losses

Commodities extended their losses on Tuesday on fears the US slowdown could spread to emerging markets, while traders took profits to offset losses in others markets.

Crude oil prices fell to a six-week low and agricultural markets fell sharply as traders sold corn, wheat and soyabeans, three of the best performing commodities in 2007, to offset losses elsewhere, analysts said.

Base metals, on the other hand, limited their losses with aluminium and copper prices losing less than 1.5 per cent on the day. But analysts remained concerned that energy and base metals are exposed to further economic slowdown.

Robert Laughlin of MF Global in London said that the immediate risk for commodities was “a liquidation of open positions by some market participants in order to finance positions on other markets.”

Nymex February West Texas Intermediate fell to $87.40 a barrel, a drop of $3.17 from Friday’s close, but about $1.29 below Monday’s last electronic quotes.

The Nymex exchange did not set a settlement price on Monday as the open-outcry trading floor was shut for a public holiday. But electronic trading late Monday had WTI at $88.69 a barrel, meaning the Tuesday loss was of about $1.29 a barrel.

ICE February Brent moved $1.32 down to $86.19 a barrel. Heating oil and petrol prices also lost ground tracking down crude oil prices.

On the London Metal Exchange, copper fell 1.44 per cent to a three-week low of $6,781 a tonne and aluminium moved 0.4 per cent down to $2,402 a tonne.

Peter Fertig, of Dresdner Kleinwor in Frankfurt, said: “Fears of a US recession dragging also the rest of the world into an economic slump had a negative impact on base metals.”

Although analysts said that copper, the base metals bellwether, is the most exposed to a US recession and any spill over to emerging markets, they also point that the red metal’s inventories have fallen recently and demand in China remains healthy.

Gold prices fell initially to a three-week low of $849.50 a troy ounce on heavy profit-taking, partially triggered by the strength of the US dollar against the euro. But it later recovered to trade at $861.25 an ounce, just below Monday’s $864.30 an ounce.

Agricultural commodities fell sharply after strong gains last year and early 2008. In Chicago, CBOT March corn fell by its daily limit of 20 cents to $4.78½ a bushel and CBOT March wheat shed 23½ cents to $9.39 a bushel. CBOT March soyabean lost 41 cents to $12.23 a bushel.

India set to strengthen commodities regulator

India may move to beef up its commodity markets regulator at a cabinet meeting this week with new legislation to make it fully independent and armed with punitive powers, a minister said on Tuesday.

Unlike India's autonomous stock market regulator, the commodities regulator, known as the Forward Market Commission (FMC), is controlled by the Consumer Affairs Ministry and needs to seek government permission for many decisions.

"We are going to bring an ordinance this month to strengthen the Forward Markets Commission. The cabinet meeting is on January 24," Food Processing Minister Subodh Kant Sahai said.

"The main point is that the Forward Market Commission will become autonomous. Today, it is an attached office of the government," FMC Chairman B.C. Khatua told reporters when asked to explain the impact of the new laws, if approved.

"Many people do not know about commodity futures as it is relatively new here. To bolster people's confidence in the trade the regulator must have adequate powers to avoid any manipulation or excessive speculation."

He said strengthening the regulator would likely enable banks and financial institutions to enter commodities bourses and deepen trading.

The changes would also help the introduction of options trading in commodities, the minister said.

"I think the government plans to make the FMC independent like (stocks regulator) SEBI and give more punitive and regulatory powers," Anjani Sinha, managing director and CEO of the National Spot Exchange said.

"With more powers at its disposal, the FMC will be able to curb volatility and punish those who may try to manipulate the trade. It will help bring more transparency."

Biggest fall pull recent IPOs below issue price

Market completely was on free fall today following weak cues across the globe. Sensex crashed nearly 2062 points or 12% in a single day. Nifty slipped by 728 points or 14.6% though both recovered at the end of the session to some extent. Every stock got under selling pressure even newly listed stocks not remained aside from this big heat.

Nearly half stocks, listed in the last one year, are trading below issue price and today’s big fall smashed these stocks very badly.

Porwal Auto, Precision Pipes and Manaksia are down about 32% to its issue price. Brigade Enterprises, a real estate developer, slipped over 26%.

All textile stocks have been getting ruined badly because of rupee appreciation since one year and today’s biggest fall impacted heavily.

Company	Issue Price	Current Price	% Loss
House of Pearl	550	210.95	-61.65
Broadcast	120	48.15	-59.88
Vijayeswari Tex	100	42.55	-57.45
IVR Prime	550	255.35	-53.57
Decolight Ceram	54	27.65	-48.8
Asahi Songwon	90	47.05	-47.72
Jagjanani Text	25	13.1	-47.6
Oriental Trimex	48	26.05	-45.73
Alpa Laboratori	68	38	-44.12
Technocraft Ind	105	61.5	-41.43
Nelcast	219	129.05	-41.07
Raj Television	257	152.85	-40.53
Hilton Metal	70	41.9	-40.14
Empee Distiller	400	246.6	-38.35
KPR Mill	225	141	-37.33
AMD Metplast	75	47.4	-36.8
SMS Pharma	380	250.95	-33.96
Porwal Auto	75	49.75	-33.67
Precision Pipes	150	100.45	-33.03
Lawreshwar Poly	16	10.81	-32.44
Manaksia	160	108.35	-32.28
Rathi Bars	35	24.95	-28.71
Renaissance Jew	150	107	-28.67
Insecticides In	115	82.3	-28.43
Cinemax India	155	112.7	-27.29
Brigade Enterp	390	286.75	-26.47
Transwarranty	52	39	-25
Dhanus Tech	295	223.25	-24.32
Fortis Health	108	84.55	-21.71
Spice Comm	46	36.1	-21.52
Lumax Auto	75	60.45	-19.4
Abhishek Mills	100	80.9	-19.1
Mudra Lifestyle	90	72.95	-18.94
C and C Const	291	239.45	-17.71
Zylog Systems	350	291.55	-16.7
Autoline Ind	225	192.55	-14.42
Firstsource Sol	64	56.7	-11.41
Mindtree Cons	425	378.8	-10.87
Puravankara Pro	400	359.45	-10.14
Asian Granito I	97	88	-9.28
Celestial Labs	60	55.2	-8
Magnum Ventures	30	27.7	-7.67
Roman Tarmat	175	162.2	-7.31
Circuit Systems	35	34.7	-0.86
Kaushalya Infra	60	59.8	-0.33