Warrants Highlight

Is QE3 really beneficial?

Last night, the Federal Reserve Bank of Philadelphia President Charles Plosser poked holes at the Fed’s third quantitative easing, an open-ended bond purchasing program which is aimed at improving the labour situation in the United States.

For those with a bearish view on the market, Macquarie has a large selection of put warrants to choose from.

Index Put Warrants

Single Stock Put Warrants

The S&P 500 Index fell 1.1% day on day, the largest decline since the Fed announced QE3 on 13 Sept. The FOMC previously mentioned that it will be purchasing mortgage-backed securities at a rate of $40bil every month, until the unemployment rate lowers.

Won’t boost growth or hiring
Plosser said in a speech at the district bank in Philadelphia that “we are unlikely to see much benefit to growth or to employment from further purchases”. His claim is backed by economic research which indicates that additional asset purchases are “unlikely to reduce long-term interest rates by a significant amount”. He believes that lowering rates by “a few more basis points” will neither spur growth nor hiring.

He also said that employment levels cannot be effectively targeted by central banks because hiring depends on other factors like technology, education and tax rates. “It doesn’t make sense to say that there is a particular unemployment rate that we can achieve,” Plosser told reporters.

Risks outweigh benefits
Plosser opposed the committee actions in September because he feels that “increasing monetary policy accommodation is neither appropriate or likely to be effective in the current environment.” He added that his assessment of the QE is that the risks outweigh the benefits of the program.

What risks?
Plosser thinks that when the central bank is required to reduce stimulus, it may be “forced into selling assets in the open markets” and given the size of the Fed’s balance sheet, the effects may be disastrous. The balance sheet from the previous two quantitative easing already contains $1.25trillion of mortgage backed securities, $175bil of federal agency debt and $900bil of Treasuries.

Who is on his team?
Richmond Fed President Jeffrey Lacker, who voted on the FOMC this year, was the only one to vote against QE3. His argument is that the easing will “have a greater effect on inflation and a minimal impact on jobs”.

Dallas Fed President Richard Fisher, who didn’t get to vote this year, also opposed the move. He reasons were the same as Lacker, and added that he do not see the benefits of “letting inflation rise to levels where we might scare the markets”.

Protect yourself from falls in the market
A put warrant gives the holder the right (but not the obligation) to sell the underlying share/index for a fixed price (the exercise price) at a specific future date (the expiry date).

Put warrants allow investors to potentially earn a profit when the underlying falls. Unlike call warrants whose prices tend to move in the same direction as the underlying, put warrants will tend to move in the opposite direction to the underlying, increasing in value as the underlying falls and decreasing in value as the underlying rises.

Singapore Market Wrap

Markets waiting for a catalyst

The Straits Times Index (STI) ended flat, down 0.03% (0.8 points) to 3067.13 for the day, with the region experiencing mixed reactions due to the lack of a catalyst to drive market. Recent mixed economical data, such as German business confidence hitting a 31-month low and Singapore's August Consumer Price Index at it's lowest in nearly 2 years, has given traders dilemma.

STI 3100MBeCW121031 (Q1AW) exercise level 3,100.*
STI 2950MBePW121031 (Q0ZW) exercise level 2,950.*

Singtel acquires stake in TheMobileGamer / Temasek selling Singtel shares
Singtel's wholly-owned subsidiary, Singtel Idea Factory Pte Ltd, has bought 35.54% interest in the share capital of TheMobileGamer Pte Ltd (TMG) for $1.80 million. It has
also entered into a conditional share subscription agreement to subscribe for an additional 11.48 million new Series B preferred shares at S$0.107 per share in the share capital of TMG.

In separate news, Temasek decides to sell Singtel shares worth $1.3 billion at between S$3.20 and S$3.25. This represents a 2.5% stake in Singtel. Singtel edged up 0.3% ($0.03) to close at $3.33 day-on-day.

SingTel MBeCW130301 (PB6W) exercise level 3.30.*
SingTel MBeCW130603 (Q4AW) exercise level 3.80.*

Ezion secures deal with South East Asian National Oil Company
Ezion has announced that it has secured a deal to provide two service Rigs to be used by a Southeast Asian based national oil company. The 2 service Rigs' are worth approximately USD$201 million and USD$82.1 million respectively over a 5 year period. Ezion increased 2.38% ($0.3) to $1.29 in yesterday's trading.

Ezion MBeCW130301 (Q5SW) exercise level 1.20.*
Ezion MBeCW130603 (Q8WW) exercise level 1.40.*

Overnight Market Wrap

US markets fall despite strong data

Last night, the US consumer confidence as well as home prices did better than economist estimates. The S&P/case-shiller index of property prices showed that home prices rose 1.2% from July 2011. This is the biggest advance since August 2010 and the S&P rallied 0.4%.

However, US stocks reversed all of their gains and the S&P finally closed 1.1% down for the day. Investors sold down stocks after the Federal Reserve Bank of Philadelphia president, Charles Plosser questioned if the Fed's bond buying plans will be effective. He feels that the QE3 is probably unlikely to boost growth or hiring and might in fact jeopardize the central bank's credibility.

Overnight Markets

Indices	Last	Change
STI	3067.13	-0.0%
HSI	20698.70	0.0%
DJIA	13457.50	-0.8%
S&P 500	1441.59	-1.1%
Nasdaq	3117.73	-1.4%
China A50	7004.06	0.2%

Corporate News

Corporate Announcements

Temasek is selling 400 million shares, worth as much as $1.3 billion, of Singtel to rebalance it's portfolio. This represents a 2.5% stake of Singtel with the sales of the shares will be done at between S$3.20 and S$3.25.

Earnings release dates:
Thu 18 Oct: SGX (1Q13)

Ex-dividend dates:
Wed 26 Sep: SGX ($0.15)
Tue 6 Nov: Olam ($0.05)