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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (63959)	5/18/2005 8:23:44 PM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

i actually need the return of the reflation trade given my current circumstance and so i like what is going on, a lot

To: Maurice Winn who wrote (63959)	5/18/2005 8:35:29 PM
From: TobagoJack	Read Replies (2) \| Respond to of 74559

Hello Maurice, <<when will those silly housing stock investors understand that they should be SELLING not buying at higher prices?>> Soon, in the US, because the butterfly fluttered its wings, in HK ... scmp.com Thursday, May 19, 2005 City closing the door on 'hot money' LOUIS BECKERLING The Monetary Authority last night announced the biggest overhaul of Hong Kong's 21-year-old currency peg, aiming to slam the door on inflows of "hot money" betting on a yuan revaluation and to force interest rates higher. From now on the dollar will trade within a band, with an upper limit of $7.75 to the US dollar. The immediate result of the change will be an end to the long interest-rate holiday enjoyed by Hong Kong borrowers, and a jump in home-loan repayments - though depositors will also benefit from higher savings rates. In a widely telegraphed move financial markets had been expecting since Friday, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said the authority would, from today, sell dollars whenever the currency's exchange rate reached the $7.75 ceiling. However, he stunned the markets by saying the dollar would also be allowed to weaken to $7.85 to the greenback - a dramatic jump from the $7.80 level which, until now, has triggered intervention to protect the currency. The peg will be lowered in five equal steps, beginning on Monday. Commentators had been predicting a trading band as narrow as $7.78-$7.80. Mr Yam said the width of the trading band had been selected after careful thought. "The convertibility zone is set so that it is neither so narrow that it displaces foreign exchange business involving the Hong Kong dollar nor so wide that the exchange rate becomes excessively volatile." He said putting an upper limit on the dollar's value would get rid of uncertainty about how much the currency could strengthen. "It should also reduce the usage of the Hong Kong dollar as a vehicle for speculation on a revaluation of the yuan," he said. "I think it is better that at this point in time we should have [a ceiling] ... to give people a very clear message." In addition to intervening to keep the currency within its trading band, the HKMA may also buy or sell the currency at any point between $7.75 and $7.85. Simon Klassen, foreign exchange and interest rate analyst at JPMorgan, called the announcement a huge change. "This certainly shows that the HKMA is very serious about getting Hong Kong rates back in line with US rates," he said. After the HKMA announced the adjustment, it was forced to buy $3.12 billion to stop the dollar falling below $7.80. That also helped push interest rates higher. From just 1.78 per cent on Thursday, the benchmark three-month Hong Kong interbank offered rate rose to 2.66 per cent yesterday - still well below the three-month US dollar rate of 3.28 per cent, and suggesting that local rates will continue to move higher. News that the authority was taking action against speculators sent the Hong Kong dollar down sharply to 7.8123 to the US dollar from around 7.7985 before the announcement, and triggered an outflow of funds. The currency plunged to 7.7789 in the 12-month forwards market. It is the first time the linked exchange rate system has been tweaked since the East Asian financial crisis in 1998, when downward pressure on the currency prompted the HKMA to move its floor to $7.80 to the greenback from $7.75. Financial markets got wind of the changes well before they were announced. Mr Yam told legislators on Friday that adjustments to the system were being considered, and on Monday, John Greenwood, the "father of the peg" and a member of the HKMA's currency board, said a ceiling was being considered. Forewarned, speculators who had driven the spot and forward rates of the Hong Kong dollar higher as they bet on gains arising from a possible revaluation of the yuan, began to unwind their positions. Additional reporting by Reuters