FUTURES Market correctly guessed interest-rate fall

Press, 19 April 1986, Page 23

FUTURES Market correctly guessed interest-rate fall

Interest rate futures indices rose this week in correct anticipation of the fail in physical rates at yesterday's Government stock tenders. (The indices move inversely to physical rates.) Miss Jenny Chin, of Marshall Futures, said bullishness on interest rates dominated during the week. Prices of PCP (short-term interest rate) futures moved up sharply ahead of the Government stock tender, expecting it to bring much lower physical rates. ’ ‘‘Sentiment over-all is now for lower interest rates across the board. Many players are now looking for any correction on PCP futures to take the opportunity to go long (take buying positions). We still favour the long side of the unit.”

Mr Geoff McDonnell, futures manager of Mair Astley, Ltd, said the PCP futures index rose steadily during the week as futures traders adopted the view that interest rates were about to take a further downward course. "With banks already having lowered some of their rates this week, we now look to a reduction in the call rate — which has been in the 20 to 22 per cent region for some

time now — before opening further longs.” Buyers appeared to be keen at present levels. These had been nearly 100 points (1 per cent) ahead of physical 90-day rates at times. Govt stock In Government stock contract futures sharp rises were seen as dealers turned from being mildly bullish to very bullish. This feeling was justified as the stock-tender results yesterday had Government stock rates at between 1741 and 1798 — a drop of nearly 2 per cent from the last tender, said Miss Chin of Marshall’s. “Once again, we would play this market from the long side (buying contracts). Volume on this market has soared with the volatility in rates.”

Mr McDonnell, of Mair Astley, is asking whether the "bubble” has burst. According to interest rate tenders, rates have peaked, he answers. "With strong buying of Government stock by investors hoping to catch attractive rates, the futures index has risen in excess of 100 points over the week. At near

$3O a point, this contract has proved extremely profitable for those holding long (buying) positions, as trading has been along a one-way street all week.”

The tender yesterday showed keen ' overseas interest, the amount tendered for being heavily oversubscribed, Mr McDonnell said. “However, with such a rapid upward movement in the index we would anticipate some consolidation before breaking high ground.”

Government stock futures traded at record levels on the Exchange yesterday. In all, 333 lots were traded, 116 more than the previous best of 217. (Other futures contracts were quieter. The overall market total was 563.)

SUS futures The New Zealand dollar has been relatively firm this week although it failed to breach 5550. Sentiment for the kiwi dollar changed early this week as dealers began to favour selling the kiwi, but the stock tender which drew offshore interest halted any great fall in the unit, Miss Chin said. “We still see range trading of 5450-5550 to hold short-term.” Mr McDonnell of Mair Astley, said the kiwi dollar traded within a narrow range this week: between 55 and 55.5 U.S. cents. Foreign exchange players were happy to sit on the sidelines awaiting the results from stock tender No. 30.

Offshore events had yet again not affected the kiwi dollar. The U.S. dollar initially rose because of the Libyan situation, but the buy-

ing quickly ran out of steam amid expectations of further interest rate cuts and rumours of poor first-quarter GNP growth in America.

"A break-out of this narrow range is imminent, with the 1.75 per cent drop in Government bond rates at yesterday’s tender likely to be the catalyst “These much lower rates should weaken the kiwi, but offshore buying to settle the tender will limit any major move.” Wool The wool futures market traded reasonably actively this week, most months having traded in a 2c to 4c range, said Mr Guy Spooner, of Marshall Futures.

“The most significant fundamental change during the week was a 15c movement down from last week’s 505 c per Ikg to 490 c for the 35F2D quote at the wool sale in Wellington yesterday. “This sharp movement by the physical market had no major effect on futures prices because speculators and hedgers alike believe that the N.Z. dollar versus major currencies will weaken before the beginning of the new selling season in August.” Mr Spooner advises buying the middle to distant-month contracts in anticipation of this movement. Mr McDonnell said it had been a relatively quiet week for wool futures as traders concentrated on the market movers — the interest rate contracts.

“It is still the well prepared, good coloured wools which are in demand, poorer lines attracting less interest.

“Prices eased in anticipation of weaker wool sales late in the week, but with the exception of the spot month, further downward movements will be limited if the lower interest rates flow through to a weaker kiwi dollar. Australia The Sydney Futures Exchange will introduce two new agricultural contracts to replace the existing greasy wool and trade steer contracts.

The new contracts, which will remove the obligation to deliver, will be cash settled and are scheduled to begin trading on May 12 and July 22 respectively. Instead of delivery, a cash adjustment may be made between the two parties, based on the difference between the contract price and the indicator price at that time. Details of trading on the New Zealand exchange yesterday:

SUS CONTRACTS Mth Open H/L Last Vol May 1.8365 .8455/300 .8300 43 Jun 1.8640 .8640/535 .8535 2 Contracts traded: 45 Open positions at April 17: May 247, June 1, Sep 1, total 249 (down 222). COMMERCIAL BILLS Mth Open H/L Last Vol May 8015 050/015 30 96 Jun 8090 090/075 80 21 Contracts traded: 117 Open positions at Apr 17: May 611, Jun 284, Jul 1, Sep 114, Dec 54, Mar 17, total 1081 (down 281). GOVERNMENT STOCK Mth Open H/L Last Vol May 8232 271/225 267 231 Jun 8250 290/250 280 102 Contracts traded: 333 Open positions at Apr 17: May 293, Jun 148, Jul 1, Sep 1, total 443 (up 6).

Contracts traded: 68 Open positions at Apr 17: May 195, Aug 182, Oct 188, Dec 196, Jan 217, Mar 270, May 249, Aug 139, Oct 39, total 1675 (down 19).

N.Z. FUTURES MARKET WEEK ENDED March 18 Trading Traded prices Total Open months This week To date this cont’s JUS High Low Last High Low week Apr ’86 1.8090 1.8020 1.8035 1.97801.8035 60 0 May ’86 1.8455 1.8250 1.8300 1.9625 1.8245 176 247 Jun '86 1.8640 1.8500 1.8535 2.10051.8500 3 1 Sep '86 2.18902.0000 1 Dec , ’86 2.08802.0215 Totals 239 249 PCP apr ’86 7915 7875 7890 7915 7630 380 0 May ’86 8050 7920 8030 8050 7745 665 ■ 611 Jun ’86 8090 8000 8080 8225 7800 110 284 Jul ’86 8070 8070 8070 8070 8070 1 1 Sep ’86 8050 8010 8050 8219 7850 24 114 Dec '86 8120 8032 8120 8299 8000 27 54 Mar ’87 8250 8050 8250 8250 7975 11 17 Totals 1218 1081 GOVERNMENT STOCK Apr ’86 8195 8145 8195 8220 8030 29 0 May ’86 8271 8152 8267 8271 8034 782 293 Jun ’86 8290 8158 8280 8290 8045 228 148 Jul ’86 8250 8250 8250 8250 8250 1 1 Sep ’86 8200 8200 8200 8200 8200 1 1 Totals 1041 443 WOOL May ’86 507 498 499 571 456 44 195 Aug ’86 6518 517 517 576 474 50 182 Oct ’86 522 520 520 571 474 16 188 Dec ’86 524 520 522 571 475 29 196 Jan ’87 525 522 523 568 474 21 217 Mar ’87 528 526 527 555 480 27 270 May ’87 534 531 533 562 486 25 249 Aug ’87 545 544 544 555 540 6 139 Oct ’87 547 544 544 550 544 12 39 Totals 230 1675 Tenderable stock: 1248 bales. 35F2D quotes — 492 in Wellington April 18.

WOOL FUTURES Mtb Open H/L Last Vol May 498 499/498 499 17 Dec 521 522/520 522 15 Jan 523 523/523 523 4 Mar 526 528/526 527 16 May 532 533/532 533 15 Aug 544 544/544 544 1