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Latest German gold sales scheme reportedly abandoned
By Jennifer Hughes
Financial Times, London
Wednesday, February 15, 2006
http://news.ft.com/cms/s/dda665fc-9e58-11da-b641-0000779e2340.html
Net inflows into US markets dropped below the level needed to cover
the trade deficit for the first time in seven months in December,
prompting concern about the dangers of the current account deficit.
The Treasury reported net inflows of $56.6 billion in December, down
sharply from $91.6 billion in November and failing to match the
$65.7 billion December trade deficit. As a crude measure, net
inflows that fail to balance trade outflows imply less demand for
dollars and therefore suggest the potential for a slide in the US
currency.
The dollar slipped almost half a cent against the euro on the news,
to $1.1946, but recovered later as market attention turned to Ben
Bernanke's first testimony to Congress as Federal Reserve chairman.
The drop in net US inflows was almost all the result of a sharp fall
in net buying of Treasuries. Foreigners bought a net $18.3 billion
worth in December -- the weakest in six months and down from a
record $54.4 billion in November.
Foreign central banks, particularly those in Asia that manage their
currencies, have been big buyers of Treasuries as a safe home for
their dollars. Any drop in buying could signal a shift in asset
management away from the US. China has already said it is planning
to manage more actively its $800 billion-plus reserves and the
Treasury data revealed the net $10.6 billion net inflow from China
was split fairly evenly between Treasuries, corporate, and agency
bonds.
Oil producing nations are also believed to have been big buyers of
Treasuries in recent months as a result of their windfalls from the
high price of oil. Anecdotal evidence supports this, but since many
institutions place orders through investment banks in other centres,
such as London, the buying is disguised in the Treasury data. The UK
remained the biggest single source of US buying last month,
responsible for a net $27.7 billion.
"Whereas Asian demand for US bonds is unlikely to end any time soon
as a conscious policy decision, the reversal of petrodollars from
the US bond market remains the greatest threat to the dollar in
2006," said Michael Woolfolk at Bank of New York.
Appetite for US bonds has formed the basis of overseas demand for US
securities with interest in equities still weak. Foreigners bought a
net $8.7 billion in US stocks in December, but US investors
continued to push money overseas, buying a net $13.8 billion in
foreign equities and a net $3.7 billion in overseas bonds.
Foreigners' buying of corporate and Agency bonds was roughly steady
at a net $9.8 billion into agencies and a net $37.3 billion into US
corporate bonds.
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