Fed bond-buying could be more aggressive than new timeline: Dudley...

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The Federal Reserve's asset purchases would be more aggressive than the timeline Chairman Ben Bernanke outlined last week if U.S. economic growth and the labor market turn out weaker than expected, the influential head of the New York Fed said on Thursday.

Pushing back hard against market concerns over the withdrawal of quantitative easing, William Dudley stressed in a speech that the newly adopted timeline for reducing the pace of bond buying depends not on calendar dates but on the economic outlook, which remains quite unclear.

Turning to the question of when the Fed will ultimately raise interest rates, Dudley, a close ally of Bernanke, went so far as to say that recent market expectations for an earlier rate rise are "quite out of sync" with the statements and expectations of the policy-making Federal Open Market Committee."Economic circumstances could diverge significantly from the FOMC's expectations," Dudley told reporters at a briefing at the New York Fed's headquarters in downtown New York.

"If labor market conditions and the economy's growth momentum were to be less favorable than in the FOMC's outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher pace for longer," he said.

Following a Fed policy meeting last week, Bernanke surprised markets by saying the central bank expected to reduce the $85-billion monthly pace of bond buying later this year and to end the QE3 program altogether by mid-2014, if the economy improves as expected.Global markets have since fallen sharply, with yields on the 10-year U.S. Treasury spiking to near a two-year high.
Dudley, who has a permanent vote on monetary policy, repeated and backed the timeline Bernanke articulated last Wednesday.

But he appeared to want to bolster efforts by some of his Fed colleagues this week to calm investors' worries that less Fed accommodation will hurt the slow U.S. and global economic recovery.
The labor market, which the Fed is targeting with QE3, "still cannot be regarded as healthy," Dudley said, adding "there remains a great deal of slack in the economy."

He expects Gross Domestic Product growth of about 2.1 percent this year, about the same as it has been since the recession ended in 2009. But Dudley expects that to pick up next year.

LEANING AGAINST HIGHER RATES

Frustrated with fitful U.S. recovery from the Great Recession, the central bank has kept the federal funds rate near zero since late 2008 and has promised to keep it there at least until the unemployment rate falls to 6.5 percent from 7.6 percent now, as long as inflation stays below 2.5 percent.
Even under the timeline for reducing QE3, "a rise in short-term rates is very likely to be a long way off," Dudley said.

"Not only will it likely take considerable time to reach the FOMC's 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates," he said.
According to futures contracts at the Chicago Board of Trade, traders had pushed forward expectations for the first interest-rate hike to late 2014 despite published forecasts that show most Fed policymakers don't expect to tighten until 2015.The Fed's two main stimulus efforts - QE3 and low rates - are tied in different ways to sustainable economic growth.

Dudley and others at the central bank have long complained that U.S. government spending cuts and higher taxes could undercut the U.S. recovery, which has stumbled in each of the last few years.
Economic growth was revised lower on Wednesday to a below-average 1.8 percent in the first quarter, another worrying sign for the world's largest economy.

"I continue to see the economy as being in a tug-of-war between fiscal drag and underlying fundamental improvement, with a great deal of uncertainty over which force will prevail in the near-term," Dudley said.

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Is the Fed Prepping Markets for the End of QE?

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If an article in Monday's Wall Street Journal is anything to go by, the U.S. Federal Reserve is getting ready to unwind its massive monetary stimulus program. And that prospect is unlikely to be as alarming for financial markets as feared, analysts tell CNBC.

Fed officials have mapped out a strategy to wind down its $85 billion-a-month bond-buying program in careful steps, although the timing of when that will start is still being debated, noted Fed watcher Jon Hilsenrath wrote in the WSJ.

Any unwinding of the Fed's quantitative easing (QE) program, which has fueled a rally in equity markets and other risk assets, is generally viewed as negative and any indication of this happening has been highly anticipated in the U.S. since late last week.

"Having spent two New York sessions pricing in a sharp change in Fed stance, it is not obvious that the article was worth the wait," analysts at Westpac said in a note. "The timing of the unwinding of QE remains data-dependent, not a serious prospect until perhaps late U.S. summer at the earliest."
Analysts say that in essence, the Fed appears to be managing market expectations that its quantitative easing program will not last forever.

The Fed has said that it would maintain its key interest rate between zero and 0.25 percent until the unemployment rate fell to 6.5 percent. It has also committed to monthly purchases of bonds until labor market conditions improve substantially.

Sooner Rather Than Later?

And it is the recent signs of improvement in the jobs market that has renewed talk about a possible end to the quantitative easing. The latest non-farm payrolls report showed the U.S. economy created 165,000 new jobs last month, much more than expected, helping push the unemployment rate down to 7.5 percent. Data last week meanwhile showed jobless claims at their lowest level in almost 5-1/2 years.

"The timing is still a bit uncertain, but our view is that there will be no more QE from the United States after December this year," said Geoff Lewis, global market strategist, J.P. Morgan Asset Management.
"They're [Fed officials] not going to raise interest rates they've told us that until unemployment comes down to 6.5 percent, but that could be as soon perhaps as the first half of next year," he added.
Lewis said that the Fed would have no choice but to taper off QE in the face of stronger economic news and that was unlikely to lead to alarm in equity markets that have thrived on the aggressive monetary stimulus.

U.S. stocks hit fresh highs on Friday, while markets in Asia and Europe have also seen stellar gains this year. "That [an easing of QE] would be good for U.S. stocks because it would mean the U.S. economy is doing a lot better," he said.

Martin Lakos, division director, Macquarie Private Wealth told CNBC Asia's "Squawk Box" that he also remained positive on the outlook for stocks."The central bank is clearly trying to massage markets that QE is not going to be around there forever. I don't think that is a big risk as they [the Fed] are managing expectations," he said. "We remain positive on equities over the next couple of years."

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News Source: www.cnbc.com

Gold Survey : Split Views On Gold Price Direction Next Week...

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GOLD UPDATE 

Survey participants are divided on the price outlook for gold next week, with no one group capturing the majority of opinions, although nominally more participants see weaker prices.
In the Daily News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, eight see prices up, while 11 see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.Those who see weaker Gold prices cited several factors including a stronger dollar, weaker technical charts and stronger equity markets.

“Gold tried to break out, but failed. Longs came in as the market pushed above $1,400 and held just below $1,500 for several weeks, but short positions were established against the $1,500 level pressuring those long positions. In the futures, sell stops are being hit on this decline. There are still long positions in the ETFs (exchange-traded funds) and this market is testing their resolve. The physical buying in India and China will not be able to replace the investment dollars that went into the ETF markets.

Speaking of the dollar, this current strength is a big problem for gold as well. (Fifteen hundred) failed and now we will see how $1,400 fares. I expect prices to be steady to lower next week,” said Frank Lesh, futures broker at FuturePath Trading.The participants who see higher prices said they expect gold to find buying interest at these lower levels and rebound slightly.Those who see prices sideways or are neutral said they see prices trying to consolidate in the recent range.

“I suspect gold will be flat next week. We’ll likely see some up and down around the current level for a few weeks. After a strong rally following the mid-April collapse, some consolidation at best, retreat at worst, is to be expected,” said Adrian Day, chairman & CEO, Adrian Day Asset Management.

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News Source: www.reuters.com

Soft futures mostly higher - Coffee rebounds from recent losses...

U.S. soft futures were mostly higher during U.S. morning trade on Wednesday, with coffee prices moving higher for a second day amid speculation prices fell too far too quick.

On the ICE Futures U.S. Exchange, Arabica coffee for July delivery traded at USD1.3832 a pound, up 0.8% on the day.

The July contract rose by as much as 1.4% earlier in the session to hit a daily high of USD1.3907 a pound, the strongest level since April 8.

Coffee futures fell to a three-week low of USD1.3357 a pound on Monday, hovering close to a 34-month low of USD1.3207 a pound hit on March 20.

Coffee traders continued to monitor weather conditions in Brazil, as the country’s farmers began harvesting the coffee crop. Brazil is the world's largest producer and exporter of Arabica coffee.

Meanwhile, sugar futures for May delivery traded at USD0.1789 a pound, little changed on the day. The May contract was stuck in a tight trading range between USD0.1782 a pound, the daily low and a session high of USD0.1793 a pound.

Sugar futures advanced Tuesday after wet weather in Brazil caused some delays to the sugar-cane crush. Brazil is the largest producer of sugar cane in the world.

May sugar prices fell to a two-and-a-half-year low of USD0.1747 a pound on April 3, amid the view that global supplies are more than ample to meet world demand.

Elsewhere, cotton futures for May delivery traded at USD0.8374 a pound, up 0.5% on the day. The May contract rose by as much as 0.9% earlier in the day to hit a session high of USD0.8388 a pound.

Prices of the fiber slumped to a six-week low of USD0.8332 a pound on Tuesday after the U.S. Department of Agriculture said that nearly 8% of the U.S. cotton crop was planted as of last week, up from 5% in the preceding week.

The crop update eased recent jitters over a decline in U.S. and global supplies.

The agency said last week that global cotton inventories in the 2012-13 season was expected to rise to a record high of 82.45 million bales, compared to a month-earlier forecast of 81.74 million bales.

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News Source: www.cnbc.com

Gold scores modest rebound from 2-year low; caution stays...

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Gold rose 1 percent on Tuesday after a drop to a 2-year low earlier in the session ignited physical buying, but investors frustrated by the metal's lackluster performance remained cautious amid fears of central bank sales and global growth.

Bullion posted its biggest ever daily drop in dollar terms in the previous session, catching many gold bulls and veteran investors by surprise. Gold has now fallen about 20 percent so far this year after an unbroken 12 years of gains.

The typically safe-haven asset has failed to capitalize on tensions in the Korean Peninsula even as Pyongyang made new threats of military action, and has been hit by uncertainty over the U.S. Federal Reserve's stimulus program.

"The scale of the down move is such that whenever we get any signs of stabilization or any official sign of interest to buy, it's going to cause something in the order of a 1.5 to 2 percent rebound. It's only to be expected," said Tim Riddell, head of ANZ Global Markets Research, Asia.

"Given the scale of the sell-off, I would say that the rebound is not that impressive. The fact the stock market is stable is helping, and it's not creating a further position liquidation mode."
Cash gold dropped to as low as $1,321.35 an ounce, but reversed losses to trade at $1,359.51 by 12:47 a.m. ET, up $6.76, with dealers noting buying interest from consumers in Asia. The metal is about $560 below a lifetime high around $1,920 an ounce hit in September 2011.

Platinum and palladium, which have also been hammered by heavy selling, regained strength after Japanese shares pared losses due to renewed weakness in the yen. .T.U.S. gold futures for June delivery fell more than 2 percent to the weakest in more than two years before rebounding slightly, while the most active bullion contract on the Tokyo Commodity Exchange sank as much as 10 percent.
Monday's drop of around $125 per ounce in cash gold eclipsed the rout on January 22, 1980, a day after gold hit its then-record $850 on global panic over oil-led inflation due to Soviet intervention in Afghanistan and the Iranian revolution.

Reuters market analyst for commodities and energy technicals, Wang Tao, expects gold to fall further to $1,245 per ounce.Gold hit an 11-month high in October last year after the U.S. Federal Reserve announced its third round of aggressive economic stimulus, raising fears the central bank's money-printing to buy assets would stoke inflation.

But the gain was erased by a rally in equities, talks the Fed could soon end its bullion-friendly bond buying program, and concerns other indebted euro zone countries could follow Cyprus' plan to sell bullion reserves to raise cash.

Heavy outflows on global gold exchange-traded funds, which cut holdings to their lowest in more than a year, could also mark the end of a love affair between gold and investors.
"The fall in gold prices is reminiscent of some of the market capitulations seen during the global financial crisis when leveraged investors were required to sell assets to maintain balance sheets and preserve liquidity," said Ric Spooner chief market analyst at CMC Markets in Sydney.

"The extent of leverage is now much lower and this may see more orderly conditions return to the gold market sooner rather than later. Markets will also be sensitive to any further information on the situation in Boston and whether or not it has any geopolitical implications."
Physical dealers saw inquiries from jewelers following the latest sell-off, but there were no signs of buying related to tensions between the two Koreas or bombings in Boston, which killed three people.
It was the worst bombing on U.S. soil since security was tightened after the attacks of September 11, 2001. President Barack Obama promised to hunt down whoever was responsible.

Premiums for gold bars edged up to $1.70 to the spot London prices in Singapore on Tuesday from $1.20 on the previous day, but dealers had yet to see a surge in demand from jewelers and speculators.
"I think with a further reduction in gold prices, premiums may go up further. The demand is there, but the Thais are still on holiday and physical offtake in Hong Kong is not fantastic," said a dealer in Singapore.

In other markets, European stocks were seen extending losses while U.S. stock futures were up, pointing to a rebound at the Wall Street open after U.S. stocks dropped more than 2 percent.

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News Source: www.wsj.com