Readings: India’s swaps, Gold & oil, Central bankers
Two-year swap rates in the past week climbed the most since the derivatives started trading in 1999, signaling that Reserve Bank of India Governor Yaga Venugopal Reddy may raise repurchase rates to the highest since 2001.
Two-year swap rates surged 1.3 percentage points in the week through yesterday to 9.86 percent, while contracts for five years climbed 1.2 percentage points to 9.9 percent.
The five-year swap rate is 1.45 percentage points above the central bank rate, compared with a median of 23 basis points over the past four years.
- Economic Times: Gold ends at $912.60/913.60 as funds buy, oil soars
Gold ended nearly 4 percent higher on Thursday with funds pouring into commodities as a tumbling stock market amid oil’s surge to a new record high boosted bullion’s appeal as an alternative investment.
. . . the dollar extended losses against major currencies as expectations for a U.S. rate hike receded after comments from the Federal Reserve on Wednesday.
Oil, the other main external driver of the gold price, surged 4 percent to a record $140.39 a barrel.
Central bankers of fast-growing emerging economies are navigating through the stormy seas of commodity inflation by tightening monetary policies. But the “Group of Seven” central bankers have acted in a different fashion. The British, Canadian, and US central banks are focused on the global banking crisis, and the slide in US home prices, and have lowered their interest rates, while the Bank of Japan has stood motionless. But the European Central Bank was moving in the opposite direction, and guided Euro-zone money market rates to their highest in 7-years.
The downward spiral in the German bund market widened the Euro’s interest rtate advantage over the US dollar, leaving the greenback on shaky ground and vulnerable to speculative attack. Bernanke would be under heavy pressure to match a second ECB rate hike to 4.50%, to defend the value of the dollar. In essence, the ECB could hijack US monetary policy, and force the Fed to guide the federal funds rate higher, in order to shake-out speculators in the crude oil and commodities markets.
Note that major US indices dropped over 3% yesterday, and Asian markets are following suit this morning. Do we see 4000 on the Nifty soon?
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