FKLI Commentary on 19/1/09

FKLI December futures contract closed 4 points higher at 894 as compare to previous trading session with total 4783 lots traded in the market. FKLI was mainly traded sideways during the trading session.

Technically, FKLI seems traded within 880 to 900 ranges after 2 consecutive trading days. We expect FKLI would trade higher to cover gap around 907 regions before starts to trading lower again. Traders were
advice to hold short position in the coming trading session while being cautious around the resistance levels at 920 and 932 regions. Supports were seen at 880 and 865 region.

Gold Climbs in New York as Dollar Weakens; Silver Advances

Jan. 16 (Bloomberg) -- Gold rose the most in five weeks as a weaker dollar boosted demand for the precious metal as an alternative investment. Silver also gained.

The dollar dropped as much as 1.2 percent against a weighted basket of six major currencies. Equities in Asia and Europe rose. Gold fell 5.6 percent in the previous four days as the dollar climbed 2.1 percent and the Standard & Poor’s 500 Index lost 5.2 percent. Last year, gold advanced 5.5 percent, the eighth straight annual gain.

“The dollar is weaker and the stock market is stronger, so people aren’t having to sell gold to cover losses in other markets,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There’s a general return to risk appetite.”

Gold futures for February delivery rose $32.60, or 4 percent, to $839.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day advance for a most-active contract since Dec. 10.

Silver futures for March delivery gained 77.5 cents, or 7.4 percent, to $11.215 an ounce in New York. The metal slumped 24 percent in 2008.

U.S. equity indexes fell, giving up earlier gains, after the government said it would invest $20 billion in Bank of America Corp. and guarantee $118 billion of assets. Bank of America is the largest U.S. bank by assets and its bailout helped ease concerns that the credit crisis will deepen the recession.

Since the second quarter of 2007, banks worldwide have posted more than $1 trillion in credit losses and writedowns stemming from the collapse in the sub-prime mortgage market. By November, the U.S. had pledged $8.5 trillion to rescue financial companies and help the country recover from a recession.

Cash Hoarding

Investors earlier this week sold gold to cover losses in equity markets and hoard cash, boosting the dollar. Gold capped a second straight weekly loss while the dollar is poised for the third straight weekly advance.

“Advancing global stocks offered some relief to gold buyers and the government guarantees on toxic bank assets gave further room to maneuver in riskier assets,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal.

Gold may climb to a record in the first half of this year as historically low interest rates weaken the dollar and government bailouts spark inflation, London-based researcher GFMS Ltd. said yesterday in a report. Gold reached a record $1,033.90 an ounce on March 17.

Oil Rises as Traders Attempt to Profit From Price Differentials

Jan. 16 (Bloomberg) -- Crude oil rose in New York for the first time in three days as traders purchased contracts in an attempt to profit from higher prices in future months.

Oil for delivery later this year is more expensive than for the front month, allowing traders to lock in gains. The February contract, which expires on Jan. 20, is trading at a $6.06 discount to March, down from $8.14 yesterday. Investors who made bets that February oil would fall further closed out their positions today, an action called short covering.

There’s “short-covering ahead of the Tuesday expiration,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. The discount of February oil to March touched a record for the contracts yesterday, “so it was due for a bounce.”

Crude oil for February delivery rose $1.11, or 3.1 percent, to settle at $36.51 a barrel at 2:47 p.m. on the New York Mercantile Exchange. Futures declined 11 percent this week and 60 percent from a year ago.

There will be no floor trading in New York on Jan. 19 because of the Martin Luther King Day holiday.

The price of oil for delivery next December is 58 percent higher than the front-month contract. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.

The oil market may have also increased because of rising equity prices. U.S. stocks gained for a second day as investors snapped up shares in the Standard & Poor’s 500 Index trading at its cheapest valuation since 1991. The S&P 500 added 0.8 percent to 850.12.

‘Hostages’

“The oil price and the equity markets are hostages to people’s perceptions about the economy,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “On the days when we think we’re starting to hit the bottom of the economy, the oil market and the equities markets go up.”

Crude-oil inventories at Cushing, Oklahoma, where West Texas Intermediate traded on the Nymex is stored, climbed 2.5 percent to 33 million barrels last week, the Energy Department said on Jan. 14. It was the highest since at least April 2004, when the department began keeping records for the location.

“Increasingly, the front month futures contract is trading in relation to supply and demand at Cushing, Oklahoma, as opposed to the global demand picture,” said Tim Evans, energy analyst with Citi Futures Perspective in New York.

OPEC agreed to a record 9 percent cut in supply targets at a Dec. 17 meeting to reverse the plunge in oil prices, which have dropped more than $100 a barrel in New York in the past six months. The group’s next scheduled meeting is on March 15.

Brent crude oil for March settlement declined $1.11, or 2.3 percent, to $46.57 a barrel on London’s ICE Futures Europe exchange.

Demand Forecast

Prices dropped earlier after the International Energy Agency said that global demand will decline for a second year, the first back-to-back contraction since 1983.

The IEA, which advises 28 nations on energy policy, cut its 2009 forecast by 1 million barrels a day on expectations the economic outlook will deteriorate. The agency estimates consumption will shrink 0.6 percent to 85.3 million barrels a day. OPEC, the U.S. Energy Department, JPMorgan Chase & Co. and Deutsche Bank AG have already said demand will fall this year.

“The IEA numbers certainly highlight how weak the economy is and the impact on demand,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The IEA report is joining a chorus of very bearish numbers.”

Higher Volume

Volume in electronic trading on the exchange was 428,966 contracts as of 3:49 p.m. in New York. Volume totaled 652,858 contracts yesterday, up 37 percent from the average over the past 3 months. Open interest yesterday was 1.26 million contracts. The exchange has a one-day delay in reporting open interest and full volume data.

Oil may fall next week, according to a Bloomberg News survey. Seventeen of 35 analysts, or 49 percent, said futures will decline through Jan. 23. Twelve respondents, or 34 percent, forecast oil will rise and six said there will be little change. Last week, 41 percent of analysts expected a gain in prices.

Euro Drops in Longest Stretch of Losses Since November on ECB

Jan. 17 (Bloomberg) -- The euro dropped against the dollar for a third week in its longest losing stretch since November as the European Central Bank cut borrowing costs by a half- percentage point and signaled it may lower interest rates again.

The 16-nation currency touched a six-week low versus the yen as Standard & Poor’s cut the credit rating of Greece and threatened to downgrade the debt of Portugal and Spain. The yen and the dollar gained against most of their major counterparts as losses at Bank of America Corp. and Citigroup Inc. encouraged investors to take refuge in the currencies.

“I am bearish on the euro,” said Neil Mackinnon, chief economist in London at ECU Group Plc and a former U.K. Treasury official, in an interview on Bloomberg Television. “The ECB is still behind the curve in my view. A half-point move is not enough.”

The euro fell 1.6 percent to $1.3267 yesterday from $1.3476 on Jan. 9, losing 5 percent so far in 2009. The currency dropped 1.2 percent to 120.37 yen from 121.81 and touched 116.23 on Jan. 15, the lowest level since Dec. 5. The dollar gained 0.4 percent to 90.72 yen from 90.39 a week earlier.

Russia’s ruble slid as much as 0.9 percent to 32.6675 per dollar yesterday, the weakest level since Russia redenominated the currency in 1998, after the central bank accelerated its devaluation to stem the drain on foreign-exchange reserves. Bank Rossii devalued the currency for the fifth time in six days, a central bank official said, more than twice the pace in November and December. The ruble depreciated 5 percent this week.

Weaker Won

Canada’s dollar posted its worst weekly performance since October as the nation’s trade surplus dropped in November to the narrowest level in more than a decade. The currency declined 4.7 percent to C$1.2431 per U.S. dollar.

South Korea’s won, Asia’s worst performer against the dollar last year, posted a fourth weekly loss on concern the deepening global recession will hurt demand for exports and further U.S. bank failures will prompt hoarding of dollars. The won dropped 1.1 percent to 1,358.20 versus the greenback.

The euro weakened versus the dollar on Jan. 15 as the ECB lowered the main refinancing rate to 2 percent, matching a record low, and signaled it’s likely to cut interest rates further. The benchmark borrowing cost compares with 1.5 percent in the U.K. and a range of zero to 0.25 percent in the U.S. The ECB isn’t planning to lower borrowing costs to zero, President Jean-Claude Trichet said in an interview with Japanese public broadcaster NHK yesterday.

S&P on Jan. 14 cut Greece’s sovereign credit rating by one level to A- after threatening to drop Portugal’s AA- and Spain’s AAA credit ratings earlier in the week.

‘Talk’ of Breakup

“Talk of a euro breakup on sovereign debt downgrades is premature at this point, although the talk is getting louder,” wrote Dustin Reid, director of currency strategy at RBS Global Banking & Markets in Chicago, in a note yesterday.

The U.S. currency gained 8.5 percent to 54.64 cents per New Zealand dollar as deepening losses at financial firms led investors to seek the relative safety of U.S. Treasuries.

Bank of America reported yesterday its first loss since 1991 and got a $138 billion federal lifeline, while Citigroup Inc. posted an $8.29 billion loss, twice as much as analysts estimated, and said it will be split into two.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, touched 85.137 on Jan. 15, the highest since Dec. 11. U.S. Treasuries rallied this week, pushing the two-year note’s yield three basis points lower to 0.72 percent.

‘Vicious Cycle’

“There’s this risk of a vicious cycle, where the economy is weak, and that leads to further weakness in companies and maybe further bankruptcies,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “It’s a reminder of the risks we still face, and I think that’s a dollar positive.”

The yen gained 4.1 percent this week to 61.08 against Australia’s dollar and 7.8 percent to 49.61 versus New Zealand’s dollar. A 4.5 percent drop in the Standard & Poor’s 500 Index prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan’s currency. Its 0.1 percent target lending rate compares with 4.25 percent in Australia and 5 percent in New Zealand.

Japan’s yen advanced to 113.64 per euro on Oct. 27, the strongest since 2002, as coordinated rate cuts by major central banks on Oct. 8 and financial-system bailouts in the U.S. and Europe failed to revive stock markets.