Investors wary as Fed meeting nears

INVESTOR sentiment stayed dormant yesterday with 11,445 index futures contracts and 2,043 index options traded.

The November future fell 155 points to 9,705, a discount to the cash of 30 points, in a day of lacklustre trading. December futures fell 160 to 9,740. Trading was split with 11,000 contracts in November, 387 contracts in December and 58 in March 1996.

March futures fell 110 to 9,850, a premium over the cash of 114 points.

A broker with a United States investment bank said: 'There is really very little for traders to go on and the investors are waiting on the Federal Open Markets Committee (FOMC).' The FOMC in the US is due to meet on November 15 in its penultimate policy meeting on interest rates of the year.

Given long bond yields at present, it appears investors have placed their bets already in favour of a rate cut, as the long-bond yield is at 6.28 per cent and the quoted Fed Fund December future on Bloomberg is at 5.7 per cent.

In index options, activity in November focused on the 10,000 call, at an implied volatility of 20 per cent, and the 10,200 call, at the same implied volatility. At-the-money implied volatility stood at about 20.5 per cent.

In December there was 9,000 put trading with a relatively aggressive implied volatility of 26 per cent at the close. At the money implied volatility was 22.5 per cent. There was no activity in March or June next year.

In open interest for Friday, November futures recorded 39,278 contracts, December had 2,036 contracts and March 1996 was 25 contracts.

In index options, open interest in November was 3,934 in the calls and 5,194 in the puts. Brokers said there had been some big insurance covering ahead of the FOMC meeting, in case things should not work out as the market currently expects, as represented by depressed bond yields.

In December there were 9,205 calls and 5,974 puts as optimists bet on a surge in the Hang Seng Index at the year end. In March there were 1,536 calls and 1,737 puts.

Key US data due out on Thursday is the produce price index for October. Bloomberg shows economists expect a 0.1 per cent rise overall and a 0.2 per cent gain excluding food and energy.