My Diary 513 --- All Delayed but Gold

February 12, 2009 --- All Delayed but Gold

On the headlines, overnight US had twin deficits, two FED speakers, a successful 10Y auction and a stimulus deal. But I think the main focus is on the banks’ CEO testimony over their use of TARP funds. This is a comical but sad event as we all want to know the record over the use of government funds, but risk is laid on an already bearish market mood. Indeed overnight scorecards showed this delayed investor actions, as equities up 0.6%, bonds yields off 3-4 bps, USD unchanged with EUR 1.29 and JPY 90.40 closings near the middle of the range… Gold rallied another $26 on continued safe haven bid, but other commodities lower.

Other things worth a note are that more bank bailout plans in Europe (Irish Bank capital injection & Russian $400bn floated bank debt), the upcoming G7 meetings on stimulus, banks and FX.  In addition, judging by BDIY, gold, and other indicators, the markets continue to flash mixed signals on the underlying global economy.  However, one thing for sure is that the power of rates and FX seems to be working better as the SNB 100bps easing moved EUR higher, BOE comments on rates and QE moved GBP weaker and BOK today’s rate decision is likely to keep RW on edge. Clearly central bankers are pushing for a weaker currency to help battle deflationary pressures.

I think gold price has reacted positively to the prospect of Gilt purchases by BoE and UST by Fed. While markets doubt that this will eventually lead to inflation in a weak economy with an impaired banking system, the Zimbabwean experience shows that it is certainly possible. Local market wise, as I discussed before that gold stocks is a better defensive play than HK utilities. Zijin has rallied 18% since 2 Jan, testing 200DMVG at HK$4.91 today. HK is likely caught by the poor China trade numbers and the bad sentiment on HK property due to local talk of significant defaults in JV between NWD and SHKP. Several projects lowering the prices (see below) is another knock. HKCN ADR's overnight point to a lower start, and I expect today to lower 100-200ppts.

Overseas Market Reviews

Equities inched up 0.2% overnight, with +0.7% in US, -0.3% in EU and +0.7% in EM. Japan markets were closed. Globally, stocks have declined 2.6% so far this week. Elsewhere, 2yr UST firmed 2bp to 0.92% while 10yr dipped 6bp to 2.75%. 1MWTI oil fell another $1.61 to $35.94/bbl—the lowest price since 15Jan and only $2 above the multi-year low in mid Dec. USD is up 0.3% against EUR (1.291) and 0.5% against EM currencies, while YE gained 1.6% vs USD (90.40).