Traders are feeling the squeeze of year end funding and offset pressure in markets across the board. Many are putting money on the side. Even speaking with institutions and traders across the globe, I am finding out that they are stepping aside for the moment, even if it will be for only a short while. Foreign central banks added to their holdings of U.S. treasury and agency bonds last week. (Is that what that was?)
Who knows what the U.S. Fed will do on December 11th? The odds are changing daily. Fed policy makers differ widely on the outlook for economic growth. Fed Governor Mishkin said today that the near term path of interest rates is highly uncertain. High energy prices will make a difference down the road. The latest big news was a surge in oil after an explosion cut Canadian oil shipments through Enbridge Inc. pipelines that typically provide about 15 percent of U.S. crude imports. The blast yesterday killed two workers and initially closed four pipelines that supply U.S. refiners with an average 1.5 million barrels a day. Two of those have now reopened and a fire near the Clearbrook terminal in Minnesota, where the lines meet, has been extinguished.
The Bank of England took steps on Thursday to alleviate a squeeze on money markets over the year end, offering banks a five-week loan at an auction next week. The Bank said it would lend 10 billion Pounds at its standard rate of 5.75% until the end of the next maintenance period ending Jan. 10, but said that the amount available at its regular weekly auctions would be reduced correspondingly. Interbank lending rates through to early next year have surged since the credit crunch in September as banks have preferred to hold onto their cash to make sure their books balance, rather than lend to other institutions.
BOE Governor Mervyn King has come under fire since the credit crunch started in August for dragging his feet on supplying banks with the cash they need, while the European Central Bank and Federal Reserve are perceived to have lent more freely. The BOE had upped its cash injections by 30 percent since August, while the ECB and Fed had held theirs constant. King told the Parliament Treasury Committee that the ECB and the Fed have been very clear that they have not increased the total amount of liquidity they have injected into the banking system since this crisis started at all. King also stated that the main objective of BOE was to keep overnight lending rates in line with the official Bank rate of 5.75% and explained that the UK system allows banks to set their own reserves targets.
The Dollar found support against most majors today as buoyed by demand from U.S. corporations looking to square up the books before the seasonally less liquid year end period.
Treasuries this week and last have seen a whole lot of action. Price swings in U.S. government debt reached the highest since September 2003. The Fed reported that its holdings increased $6.03 billion ending Nov 28, standing at a total of $2.033 trillion. The breakdown showed overseas central banks buying $582 million in Treasury debt to stand at a total $1.233 trillion. The foreign institutions purchased $5.45 billion worth of securities from government-sponsored agencies. Treasuries rose and three-month bill yields fell below 3 percent for the first time since August as concern over the willingness of banks to lend drove investors to the relative safety of U.S. government debt. Fed funds futures on the Chicago Board of Trade show traders see a 34 percent chance that the central bank will lower its benchmark borrowing cost to 4 percent at its meeting on Dec. 11. That pushed down the odds that the rate will be reduced to 4.25 percent to 66 percent, from 94 percent yesterday. The current rate is 4.50 percent.
This report may include information garnered from the following sources: CBOT, Bloomberg, Reuters, Interactive Investor, Cattle Network, Earth Times, AgReport, Aol Money, CNN Money, Market Watch, The Forex Market, Yahoo Finance, FXsol, Financial Times, iWon, Report on Business, Crainâ€™s, Dow Jones Newswire, Nasdaq News, INO News, The Hightower Report.
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