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Fed Pumps $8 Billion More Into market

The Independent
November 27, 2007

Central bankers are becoming nervous that a renewed credit crunch could destabilise financial markets around the end of next month, and the US Federal Reserve has pumped an initial $8bn (£3.9bn) into the market to help ease the mounting pressure.

Wall Street banks have been hoarding cash rather than lending it out, fearful that losses on US mortgages and related products are undermining the strength of their balance sheets.

And the Federal Reserve said that the problem could become acute before 31 December, when many institutions close their books on the financial year and when many important accounting calculations are made.

In a highly unusual move, the Federal Reserve Bank of New York said yesterday that it was putting an additional $8bn into the financial system through 43-day loans, money that won’t have to be paid back until 10 January. The duration of the loans is substantially longer than that in normal market operations by the Fed.

If Wall Street’s banks become unwilling or unable to lend to each other, there could be knock-on consequences throughout the financial system, with high street lenders and other businesses finding it impossible or punitively expensive to find the short-term money required to fund their operations. It was just such a credit crunch that led to the problems at Northern Rock at the height of the crisis in the summer.

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ECB injects £35bn into markets

Telegraph
November 29, 2007

The European Central Bank pumped a further €50bn (£35bn) into the money markets yesterday but it did little to alleviate funding fears, pushing the inter-bank lending rate back towards record highs.

At auction, the ECB lent banks less than half the amount they bid for to cover their funding needs as the year-end credit squeeze intensified. They paid an average 4.65pc, the highest in six-and-a-half years, and well above the ECB’s base rate of 4pc.

Despite the move, three-month inter-bank lending rates in the eurozone climbed for the 11th consecutive day to 4.75pc.

Banks are reluctant to lend across the New Year period as they do not want to jeopardise their year-end figures by exposing themselves to further shocks. To date, banks have revealed writedowns of more than $50bn (£24bn) related to US sub-prime mortgages.

The US Federal Reserve plans a series of repurchase agreements into 2008, starting with an $8bn operation yesterday.

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Gold Slips Under $800, Oil Plummets $94 on Firmer Dollar

Reuters
November 28, 2007

LONDON (Reuters) – Gold slid under the $800 mark in increasingly volatile conditions on Wednesday, as softer oil prices and a firmer dollar against the euro dented the metal’s wider appeal for investors.

Spot gold hit an intraday high of $815.30 but later fell sharply, losing more than 2 percent at one point to a low of $792.10.

Bargain hunters stepped in at the lower levels to pare losses to $798.05/798.75 an ounce by 1150 GMT from $811.90/812.70 quoted late in New York on Tuesday.

The dollar edged up to one-week highs against the euro on Wednesday as investors took profit from the U.S. currency’s tumble to multi-year lows, while oil prices softened to below $94 a barrel .

A stronger dollar makes gold dearer for non-U.S. buyers while easing oil prices take the heat out of gold’s role as a hedge against oil-led inflation.

“Selling today was initially triggered by the strengthening dollar and increased speed after pivotal chart points were broken,” said Alexander Zumpfe, precious metals trader at Heraeus in reference to gold dipping below support at $800.

However, traders generally remained confident on the metal’s ability to contain losses below $800 due to expectations for further dollar losses as investors anticipated cuts in U.S. borrowing costs that would dent the dollar’s yield appeal.

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