MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open)
|--------------+--------------+--------------+--------------+--------------|
|              |     GOLD     |    SILVER    |   PLATINUM   |  PALLADIUM   |
|--------------+--------------+--------------+--------------+--------------|
|     OPEN     |  1139.00/50  |   15.69/72   |    948/51    |    701/04    |
|--------------+--------------+--------------+--------------+--------------|
|     HIGH     |  1148.25/75  |   15.87/90   |    972/75    |    709/12    |
|--------------+--------------+--------------+--------------+--------------|
|     LOW      |  1139.00/50  |   15.61/64   |    946/49    |    700/03    |
|--------------+--------------+--------------+--------------+--------------|




MACRO: The minutes from the September meeting of the U.S. Federal Reserve
suggested officials chose not to raise the benchmark Fed funds rate on the
basis that it was prudent to wait for further evidence of a slowing economy
and amid concerns that inflation won’t reach their 2% target for several
years. The minutes indicated that "many acknowledged that recent global
economic and financial developments may have increased the down-side risks
to economic activity somewhat". They went on to say that “in part because
of the risks to the outlook for economic activity and inflation, the
committee decided that it was prudent to wait for additional information".
The minutes also suggested the prospective interest rate decision will
depend on whether they become more confident inflation won’t continue to
undershoot their objective. “Many members said that the improvement in
labour market conditions met or would soon meet one of the (Fed’s) criteria
for beginning policy normalisation”. Fed staff estimated inflation wouldn’t
hit the 2% goal even by the end of 2018 however. Some Fed officials had
described the September rate decision as a close call however the minutes
did not suggest there was any heated disagreement with the decision to keep
rates on hold. “After assessing the outlook for economic activity, the
labour market, and inflation and weighing the uncertainties associated with
the outlook, all but one member concluded that, although the U.S. economy
had strengthened and labour underutilisation had diminished, economic
conditions did not warrant an increase in the target range for the federal
funds rate at this meeting,” the minutes said. The full minutes can be read
here: http://www.federalreserve.gov/monetarypolicy/fomcminutes20150917.htm.
On a side note, Minneapolis Federal Reserve President Narayana Kocherlakota
(non-voter), said the central bank should in fact cut interest rates.
Kocherlakota argues that current low inflation gives the Fed a "huge
opportunity" to do more to revive the labour market. "To best fulfil its
congressional mandates, the (Fed's policy-setting) committee should be
considering reducing the target range for the fed funds rate, not
increasing it". JP Morgan believe he sees the current level of inflation as
a "free lunch" to keep easing policy and in turn boost employment.

In other releases overnight,  US initial jobless claims eased to 263k (274k
expected) from a revised 276k last week and approaching a 42 year low. A
range of partial indicators including jobless claims, the employment
component from the non-manufacturing ISM survey and the JOLTs survey all
suggest that labour market conditions remain solid, leaving the broad-based
weakness in the most recent employment report as something of an outlier.
Across the Atlantic, The Bank of England (BoE) left its policy settings
unchanged, with MPC member McCafferty remaining the sole dissenter voting
for a rate hike. The Minutes struck a mildly dovish tone, noting that
inflation would likely remain below 1% until spring 2016. The Minutes also
added that “some members of the Committee noted recent evidence that lags
in the response of inflation to interest rate changes appeared a bit
shorter than previously thought”. This implies that the Bank has scope to
allow inflation pressures to emerge more vigorously before commencing its
policy tightening cycle.

U.S. stocks overcame a sluggish morning session to rally in the wake of the
minutes from the September FOMC meeting. The Dow Jones ended up rising
+138.46 points, or +0.82%, to 17,050.75, the S&P500 gained +17.60 points,
or +0.88%, to 2,013.43 and the Nasdaq added +19.635 points, or +0.41%, to
4,810.788. All ten sectors closed higher led by energy (+1.9%), industrials
(+1.4%) and materials (+1.4%). European stocks yet again shrugged aside
poor German data in the form of the weakest German export figures since
2009 and an ugly impairment at Deutsche Bank, to rise for a fifth
consecutive session. The FTSE Euro First 300 added +3.71 points, or +0.26%
to 1,427.49, the DAX ascended +0.23% to 9,993.07, the FTSE100 rose +0.61%
to 6,374.82 and the CAC40 was up +0.18% to 4,675.91. WTI crude rallied
again +$1.80, or +3.8%, to US$49.63 a barrel at the close and briefly
trading above $50 for the first time since July. There didn't appear to be
no definitive catalyst for rally, some sources citing the ECB oil paper and
Saudi spending cut news. Others suggested the intensifying Russian military
involvement in Syria as a tailwind for prices. The USD ended lower versus
all G10 peers, undercut by the Fed Minutes. The USD fell to session lows
versus most pairs on the release, but markets quickly faded the initial
reaction, settling largely back at pre-Minutes levels by NY close. The
commodity complex again outperformed on continued crude oil strength—with
NOK, AUD, and NZD outperforming. Despite the move in crude, however, CAD
gains were limited ahead of the Canadian unemployment report today.


PRECIOUS: A very volatile session across the metals yesterday with China
returning from their week long 'golden week' celebration to much market
anticipation. General expectation was that the Chinese would come in on the
offer, as last time they saw gold we were trading at $1125 and last time
they saw silver the market was trading at $14.60. The yellow metal opened
around $1146 and slowly traded lower as we veered towards the SGE open,
finding some signs of support around the 100 dma ($1142-43). Once the SGE
opened there was modest selling on the exchange although the premium was
actually higher than it was last week at around $3 over Loco London.  It
was silver that took the limelight following the SGE open however, after
spending the majority of the morning above $16.00, aggressive continual
selling was seen into the Chinese open. We broke through $16.00 and it was
complete one way traffic down to $15.70 where some spec profit taking
slowed things down. The turnover on Ecomex was huge, sitting at over 10,000
lots (SIZ5) and eclipsing the volume of Dec gold for a good portion of the
day - which almost never happens. There was one second leg lower in Asia
which took the grey metal to a low of $15.61 before moving back to a
$15.65-75 range into the afternoon. PGM's were also under pressure but not
to the same magnitude as silver. While gold remained well supported around
$1142-43 with decent 2 way spec interest keeping things contained into the
afternoon. Eventually however gold joined the descent falling below $1140
around the time the books were handed over to Europe. NYK kicked off with
an initial dip following the better than expected jobless claims, pushing
the yellow metal to the daily low of $1137.10. The FOMC minutes were
released a little later in the session and with the Fed taking a slightly
more dovish stance and focussing on the inflation target more-so than in
the past, gold shot rapidly higher to $1151.50. Real money and producer
offers were thick above $1150 and quick to fade the move, sharply reversing
things to $1139-42 into the close. Must admit I am scratching my head a
little here as to the next direction gold will take. For now I think look
to trade an $1135-1155 range, with a break of these levels likely to spur
momentum in either direction.


ASIA TODAY: The return of China take two was a far cry from what we saw
yesterday in Asia as bids returned to the market and the metals pushed
higher following a sluggish Asian open. An elevated on-shore Shanghai
premium of close to USD $2 over loco London spot support gold higher in
early Chinese trade with further support coming from a risk on attitude
which flowed through from the dovish FOMC minutes. Equities were higher
across the board whilst the precious complex made impressive gains albeit
in a relatively orderly up-the-stairs fashion. Gold gained $9.50 for the
day although some late selling hampered the top side gains. Silver
initially fell down to the low 60's before edging higher throughout the day
to touch 15.87, yesterdays resistance level. PGM's continue to impress;
Platinum marched into the 70's with ease, whilst palladium is now almost
$200 above its August lows, last price 708/11. On the data front tonight,
U.S. Wholesale Inventories are the main release.


Regards,

                                                   
                   SAM LAUGHLIN                    
                   Trader - Precious Metals        
                                                   
                   MKS PRECIOUS METALS (AUSTRALIA) 
                   PTY LTD                         
                   Level 4, 60 Pitt Street         
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