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Commodity markets and slight correction

Posted by Adrian on March 20, 2008

The global markets are in such frenetic and panicky state, for the Dow Jones go from 420 points (after the Feds 0.75% rate cut), then plummet the next day to -293, Dow currently at 12.099.66 It shows the uneasiness of the markets, particularly in the stock market. With a long weekend looming, commodities went through a slight correction. The USD rose on the DXY:IND to close at 72.01, refer to graph:

chart.gif

It still looks like a dying currency.

Gold dropped to 944.7 on the comex close of trade from record highs of 1033.35, refer to graph (Although gold has fallen further in current asian trading now at 930, could fall to 925 – now oversold). :

gd38.gif

Oil is still trading above 100.00 a barrel.

The general commodity correction is slight, and I suspect it was due to profit taking or to shore up accounts that have been hammered by massive losses on the stock market, option and FX markets.

Risk aversion is the current trading outlook, with the financial sector still in trouble. The rumours (apparently false) HBOS (Halifax Bank of Scotland) could be in trouble have circulated. But never the less the banking sector may try and price down risky assets and get rid of them, and it is still plausible for a major institution, Wall Street Bank or otherwise to indicate to the markets that it’s in trouble. Any pricing down, dropping bonuses, asking for financial help, or approaching central banks discount windows for loans – will keep the market jittery.

The Feds bail out plans to protect the over levered high risk banking sector may stretch the capacity of the Federal Reserve. An eventual out come would be a bank, mortgage lender to officialy go bankrupt.

The rate cutting policy will prove to not only solve nothing but instill the steady decline of the US dollar. How much risk the Fed will allow it’s self to take on, only time will tell.

At this point Thornburg Mortgages could be in trouble, looking for capital to shore up it;s accounts, from guardian.uk:

“One of America’s biggest home loan providers, Thornburg Mortgage, needs to raise nearly $1bn over the next seven business days in order to keep its creditors at bay.

“The New Mexico-based firm defaulted on $610m (£307m) in margin calls from lenders earlier this month and has been teetering on the brink of becoming the next American financial company to fall victim of the global credit crunch.

It has struck a conditional deal with five creditors for a further $5.8bn of financing – but the agreement depends on Thornburg raising $948m from other sources over the next seven days.

The five banks holding the keys to Thornburg’s future are Royal Bank of Scotland, Citigroup, Credit Suisse, UBS and the troubled institution Bear Stearns.”

Sounds messy.

Regards to UBS and capital issues, as the chairman takes a cut from his bonus. A 90% cut, according to smh.com.au

“The chairman of UBS AG, Switzerland’s largest bank, is taking a 90 per cent pay cut for 2007 after giving up his bonus – but still will make about $US2.5 million ($A2.8 million), the bank said in the aftermath of massive writedowns linked to the US sub-prime mortgage crisis.”

Is this symbolic? Or an indication that accounts could be lower than expected?

I suspect the end of the assset writedowns haven’t finished for UBS and other big banks connected with the subprime mortagage mess.

All and all, with profit taking on commodities before the long weekend (easter), this could be interpreted as a slight correction in the commodity markets.

Although the whole market is in panic mode, on everything.

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One Response to “Commodity markets and slight correction”

  1. […] by Adrian on March 31, 2008 As mentioned in ‘commodity markets and slight correction March 2008 (prior to easter 2008)’ , the big Swiss bank (UBS) is undoubtedly in trouble with capital problems due to the massive […]

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