Archive for August 16th, 2010

Weekly Update 16-20th August 2010

Global markets fell in the week to date on renewed concern arising about the global recovery. Investors hoping for quick recovery got worried with the U.S. Federal Reserve saying that growth “is likely to be more modest” than they previously projected. It said that the pace of recovery in output and employment has slowed in recent months.

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The Fed left the overnight interbank lending rate target in a range of zero to 0.25 percent and repeated a pledge to keep rates low “for an extended period.” Stocks further came down with the data showing that more Americans filed applications for unemployment benefits raising the concerns over the consumer spending. Initial jobless rose to highest levels since mid February to 4,84,000. Industrial production in Europe unexpectedly declined in June by 0.1 percent from May on account of a drop in consumer durable goods.

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Another report showed that consumer confidence in U.K. dropped to a 15 month low in July. Bank of England said growth will be weaker and economy may need more emergency stimulus. It reduced its growth forecast to 3 percent annual pace from 3.6 percent rate forecast in May. The Bank of England held its bond-purchase plan at 200 billion pounds ($315 billion) and kept the main rate at a record low. Japanese markets too witnessed selling, with yen coming near to 15 months high to dollar, raising concerns over export earnings. China saw a smaller expansion in Industrial output in 11 months in July to 13.4 percent. Credit off take in China too expanded by least since March and export orders contracted in July on weak global demand.

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India’s Industrial production growth moderated to a 13-month low of 7.1% in June from 11.3% in May, weighed by a high base effect and sharp slowdown in the capital goods segment. Growth in capital goods segment weakened to 9.7% in June from 34.2% in May, suggesting a slowdown in investment demand. However, consumer demand remained strong with consumer durable goods growing over 20% for the 12th month in a row. With the base effect stronger from now onwards, the industrial growth rate is likely to remain below 10% for some time.

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The developed countries still resorting to provide stimulus to their respective economies in order to sustain the growth pace is likely to keep up the foreign money flowing into the emerging markets like India.

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Moreover with the good monsoon season, moderating Industrial production and edgy global recovery it looks RBI would wait for a while before further hiking its policy rates. Trend of the world stock markets on a weekly basis is still up but the sharp profit taking in many exchanges along with a sharp rise in dollar index is a sign of concern. But till the trend is up, one should be playing from the long side of the market. Nifty has support between 5350- 5300 levels and Sensex between 17800-17600 levels.

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Last week drop in commodities along with recovery in gold and dollar index after many weeks is advocating that upside in metals and energy is limited. Widening US trade balance and slow rise in Chinese factory order amid Chinese monetary tightening cooled off the prices. However, it will be too early to say that metals and energy will take a downturn. But they can see a gradual decline, especially base metals. Some important data from US and UK will further give direction to the commodities. Expect a mediocre week for agro commodities as market has discounted almost all big news. Keep an eye on monsoon and sowing update. Grains and pulses futures can trade in slim spread on mix fundamentals. Upsides in oilseeds appear limited for the time being.

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