FUTURES Tender fails to stir PCPs

Press, 25 January 1986, Page 23

FUTURES Tender fails to stir PCPs

The prime commercial paper (PCP) contract showed little reaction to yesterday’s announcement of the interest rates in the latest Government stock tender, the market having anticipated the news. Mr Geoff McDonnell, the manager of Mair Astley Futures, said that this week’s stock tender confirmed what the secondary market in Government stock had anticipated — interest rates were showing signs of rising. The PCP index rose this week with the money market showing signs of high liquidity — call rates on Thursday were below 11 per cent. “However, we see this as a short-term reaction. We would expect the PCP index to move down to its recent lows of 7500 as traders realise the settle of the Government stock tenders before March is going to put a certain amount of tightness in money market liquidity,” he said. Mair Astley favoured shorting the index. Mr Barry Knutson and Mr Guy Morgan, of Marac International Futures, Ltd, said that the PCP contract having dipped to near previous lows, corrected i:his week. “We expect further consolidation next week. In the longer term the contract may be in the process of forming a double bottom but there is some way to go before this is perfected. “We are more inclined at the moment to short the contract near 7750, and are wary of a 50 per cent correction to the recent fall followed by a breach of recent contract lows,” they said. U.S. dollar Mr McDonnell said that it was a quiet week for the foreign exchange market with underlying conjecture being that the

announcement of yields in this week’s stock tender would confirm the strategy of the biggest commercial player in New Zealand commerce — the New Zealand Government. The market could now take the view that the kiwi dollar could strengthen as offshore investors positioned themselves to purchase one of the best blue chip securities in the world — New Zealand t Government stock. If funds came into New Zealand to purchase the stock the kiwi dollar could be well supported at US5lc to 51.5 c. The news that three Euro-kiwi draw downs were scheduled for February showed that it was becoming economic to borrow offshore again and if such sentiment encouraged more Euro-kiwi draw downs at a time when export receipts were being repatriated there might be a bull run on the kiwi dollar. “We favour shorting the futures market — selling the United States dollar and buying the kiwi dollar.” Mr Knutson and Mr Morgan said that the foreign exchange markets found plenty of reasons to do very little this week. There was the Group of Five nations meeting to mull over, then a batch of economic statistics to digest, fourth quarter United States G.N.P. loomed on the horizon, and then the Government stock tender was the focus. The market was thin and susceptible to large orders, and at this time of year there were probably some large exporter inflows to be expected. There were also two $5O million Euro-kiwi drawdowns due next month. The kiwi dollar was unable to break U552.5C this week, and weakened late in the week, particularly against the Australian dollar on late selling on Thursday. “We still expect it to break to the upside,

though the double top on the January contract is not a perfect one ... There is also a small flag formation formed this week which would suggest a break down on the contract. “We see downside as limited to US5Oc, immediate resistance is 52.5 c, then 55.5 c the next major resistance ... As in previous sudden moves on the kiwi dollar, the break is likely to be activated by overseas trading.” Wool Mr McDonnell said that wool futures prices moved up 10c early this week and then proceeded to remain in no-man’s-land with few traders willing to take a definite stance in the market. There were indications that New Zealand wool was selling reasonably well and this was shown by the minimal Wool Board involvement when the market was at a peak supply. “However, we would take notice of any dips in the exchange rate between the United States and New Zealand dollars, and look for opportunities to open longs in the far months.”

Mr Guy Spooner, a futures broker for Marshall Futures, said that wool futures opened on a firm note on Monday, gaining up to 5c compared with the previous week’s close. The movement was in reaction to increased buying interest in the physical market from overseas interest, particularly from China and the Middle East. Local carpet and scouring mills were also strong buyers at this week’s wool auctions in Dunedin and Napier. Wool futures prices closed yesterday up 14c, $350 a contract, which was also ahead on last week’s close, the 35F2D wool quote (on which the wool futures market is based) was up to 502 c a kg, a rise of 17c on the previous week’s close. “This could be regarded as a good indication that futures prices and auction prices will remain firm in the near future,” he said. International Mr Knutson and Mr Morgan said that the Australian dollar found follow through to its break on the downside from a triangle formation, after some initial hesitation. There were some small

gaps that required filling but further lows on the Australian dollar contract should be expected. SUS CONTRACTS Mth Open H/L Last Vol Jan. 1.9420 9450/9301 9301 20 Feb. 1.9600 9600/9515 9515 15 Contracts traded: 35 Open positions at January 23: Jan. 427, Feb. 181, Mar. 1, Jun. 1, Sep. 1, total 611 (up 11).

Contracts traded: 207 Open positions at January 23: Feb. 324, Mar. 1014, Apr. 164, Jun. 110, Sep. 72, Dec. 17, total 1701 (up 28).

Contracts traded: 49 Open positions at January 23: Jan. 14, Mar. 192, May 372, Aug. 197, Oct. 203, Dec. 229, Jan. 206, Mar. 302, May 185, total 1900 (up 6).

COMMERCIAL BILLS Mth Open H/L Last Vol Feb. 7640 645/600 610 77 Mar. 7620 628/580 590 108 Apr. 7705 715/695 695 20 Jun. 7900 900/900 7900 2

WOOL FUTURES Mth Open H/L Last Vol May 515 515/515 515 5 Aug. 523 527/523 527 6 Oct. 524 525/523 525 21 Dec. 524 528/524 528 5 Jan. 525 528/525 528 11 Mar. 535 535/535 535 1

N.Z. FUTURES MARKET WEEK ENDED January 24 Trading Traded prices Total Open montbs This week To date this cont’s JUS High Low Last High Low week Jan '86 1.9495 1.9250 1.9301 2.09251.7400 122 427 Feb '86 1.9750 1.9330 1.9515 2.07801.8125 205 181 Mar '86 2.05101.8315 1 Jun '86 2.10052.1005 1 Sep '86 1 Totals 327 611 PCP Feb '86 7745 7590 7610 8143 7485 347 324 Mar '86 7745 7560 7590 8120 7490 684 1014 Apr '86 7790 7695 7695 7790 7630 165 164 Jun '86 7975 7850 7900 8225 7800 24 110 Sep '86 8000 7950 7950 8219 7890 8 72 Dec '86 8299 8100 17 Totals f 1228 1701 WOOL Jan '86 560 440 14 Mar '86 495 493 493 565 450 7 192 May '86 515 503 515 571 456 23 372 Aug '86 527 516 527 576 474 29 197 Oct '86 526 516 525 571 474 48 203 Dec '86 528 517 528 571 475 35 229 Jan '87 528 518 528 568 474 39 206 Mar '87 537 527 535 555 480 32 302 May '87 540 532 537 562 486 19 185 Totals 232 1900 Tenderable stock: 469 bales. 35F2D quotes — 502 at Napier, 24-1-86.