Posts Tagged ‘commodities’

Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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Weekly Update 25th – 29th October

Losses due to profit taking in the Indian markets during initial part of the week were recouped seeing the huge response for Coal India offering especially from the overseas investors. The issue attracted bids that exceeded the combined gross domestic product of Latvia and Iceland. However most of the Asian markets corrected in the week gone by after China unexpectedly raised interest rates to curb inflation and to prevent an asset price bubble in the economy on concerns over regions economic growth.

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The move indicates that the consensus has been reached for lower growth. Albeit past experience has shown that initial interest rate hikes does not give much harm to economic growth. China’s economy expanded by 9.6 percent in the third quarterless than the growth experienced in the prior quarter but higher than the median estimates of 9.5 percent.

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Results of companies from Europe to U.S. supported markets. According to Bloomberg data of the 132 companies in the S&P 500 that reported results since Oct. 7, more than 85 percent have topped analysts’ per- share earnings estimates.Whereas in Europe, of the 46 companies in the Stoxx 600 that have posted results since Oct. 7, 32 have beaten estimates for per-share income.

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The result season has so far been good in India. Banks have posted decent to strong earnings growth. In the Information technology sector TCS and Infosys surprised positively while Wipro surprised negatively. Auto companies are expected to deliver strong set of numbers on the back of higher volumes with price increase. Higher metal prices are likely to provide good earnings to manufacturer of base metals. Cement companies are likely to post bad set of numbers on the back of lower realization and good monsoon season.

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Market is eyeing over G-20 finance chiefs meet to try to resolve differences over countries that are devaluing their respective currencies in order to spur economic growth and to endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy. We may see some volatility in domestic markets on account of expiry week.

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Stock specific activity is likely to play out as the results season is still going on. Nifty has support between 5950-5870 and Sensex between 19640-19200.Good corporate earnings amid falling dollar index are offering opportunities to bulls to keep the momentum in their favour, especially in base metals. 19-commodity Reuters-Jefferies CRB index, which serves as a broad benchmark for commodities investors, was up for a ninth straight week since Aug. 22.

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Monetary tightening by China could not give much impact on base metals prices. In case of bullions, trend is little different. Bullions prices retreated across the board as dollar index grew stronger and investors opted to sell some of their holdings for aprofit. For the time being bullions should move in a range. Market players appears cautious to some extent ahead of next month’s decision from the Federal Reserve about whether to take steps to stimulate the economy. Even energy pack is moving in a range on mixed fundamentals. Bulls are more active in agricultural commodities owing to the ongoing festive fever.

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Weekly Update 18th – 22nd October 2010

Most of the world markets rallied in the week gone by on the buzz of further quantitative easing by U.S. Without giving details about the strategies on how the central bank will act its Nov. 2-3 meeting, Federal Reserve Chairman Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high.

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Fed is considering ways for raising inflation expectations to encourage people to believe that prices will start rising at a faster pace so that they would spend more of their money now. Retail sales in U.S.climbed more than forecast as purchases rose 0.6 percent following a 0.7 percent gain in August and manufacturing in the New York region expanded in October at a faster pace than anticipated.

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China’s Shanghai Composite Index saw gains of 8.5 percent on the anticipation that China’s banks show strong earnings growth this quarter as the lending has beaten the forecast. Moreover the strong exports growth of 25.1 percent in September mirrors the strong underlying economic momentum. The country’s foreign-exchange reserves, the world’s largest, surged by a record to $2.65 trillion at the end of September.

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India’s wholesale price index rose to rose 8.62 percent in September from a year earlier after an 8.5 percent gain in August. Manufactured product inflation and Food price inflation rose by 0.3 percent and 1.6 percent respectively in September fromthe previous month. RBI Chief Subbarao said that inflation in India is being “quite stubborn,” a sign that controlling prices remains the central bank’s priority.

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Reserve Bank Deputy Governor Subir Gokarn signaled the central bank may intervene in the currency markets to shield exporters from the strengthening rupee. The capital account showed a surplus of $17.5 billion in the quarter to June 30, compared with a record shortfall of $13.7 billion in its current account.

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Foreign investors have so far poured approximately $23 billion in stocks and 10 billion indebt this year. Industrial production expanded by 5.6 percent in August after seeingan expansion of 15.2 percent in July.Going next week the main attraction for retail investors would be the primary market with Mega IPO of Coal India slated to open on 18th October. As Infosys has already rung the bell with positive surprise in terms of earning growth, the investors would now look forward to numbers of companies like L&T, HDFC, Bajaj Auto, etc that are scheduled to announce numbers next week.

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Nifty has support between5870-5950 and Sensex between 19200-19640 levels.With expecting second round of monetary easing, investors dumped dollar and endowed other investment avenues. Commodities extended a rally to the highest intwo years and CRB closed near the mark of 300. The dollar fell to its lowest in 10 months against a basket of currencies and breached the mark of 77. Five week continuous downfall enhanced metals and agricultural commodities.

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Gold gave heroic performance and made another life time high. It rose more than 25% in 2010.Silver is also trading near 30 year high. However, being prudent investors, one should book profit in gold and silver, considering safe trading. Base metals are expected to trade in a range. Crude oil should trade in range $80-85 in short run on mixed fundamental. OPEC has decided to keep the production quota unchanged in last meeting. Agro commodities should trade with high volatility ahead of expiry of October contract.

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Weekly Update 4th – 8th October 2010

Global markets closed on a mixed note in the week gone by, with Indian markets closing in positive on weekly basis. To send a message to China to raise value of its currency, the U.S. House of Representatives this week approved a bill that would let domestic companies petition for duties on imports from China to compensate for the effect of weak yuan. U.S. Treasury Secretary Timothy F. Geithner said he is confident that tensions over China’s currency, the yuan, won’t lead to escalating trade sanctions or feed into a broader global currency conflict.

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European confidence in the economic outlook unexpectedly improved this month. An index of executive and consumer sentiment in the 16 euro nations rose to 103.2, the highest since January 2008, from a revised 102.3 in August. The European Commission forecasted a more “moderate” expansion in the second half of the year as governments from Ireland to Portugal step up spending cuts to push down deficits. ECB President Jean-Claude Trichet said that there is “continuing uncertainty” about the outlook.

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China’s manufacturing expanded at the fastest pace in four months in September. According to China’s logistics federation and statistics bureau, the purchasing managers’ index rose to 53.8 from 51.7 in August. The data is viewed very positively by the market as it shows that China’s economic momentum may counter weakness in the global recovery. It is believed that growth may be further aided in coming months as government plans to speed the completion of stimulus projects and boost public housing construction.

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In Japan, the jobless rate fell to 5.1 percent from 5.2 percent. After intervening few days back in the foreign exchange market in order to stem the yen appreciation, Japan’s Finance Minister reiterated that Japan is ready to keep intervening after selling yen for the first time in six years last month.

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Core infrastructure industry that account for 26.7 percent of industrial output in India slowed to 3.7 per cent in August, as compared to 6.4 per cent in the same month last year. Going forward we expect the markets would remain firm as it is supported by strong portfolio investments. The best strategy to ride the tide would be stay invested. Nifty has support between 5940-5870 and Sensex between 19640-
19200 levels.

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Bullions may continue to lead the charge in the commodities counter as both silver and gold recently tested life time highs in MCX. The latest boon to the metal has been increasing expectations that the Federal Reserve will further ease monetary policy with measures including the purchase of Treasuries. Jitters about European sovereign debt problems have also supported gold higher as a safe-haven investment. Better jobless claims data and a revised upward GDP in US supported the crude counter which can make further gains in next coming week. Base metals will take cues from LME as China markets will remain closed for a week. In agro counter pulses along with oilseeds may trade in range while spices can get some support from upcoming festive season. Mentha oil firm export demand and low crop will assist the prices to make fresh high in MCX.

Weekly Update 27th September – 1st October 2010

Indian Markets posted fourth weekly consecutive gains led by rising optimism of growth and portfolio investments. The run up in the market was phenomenal and beyond expectations of market participants. Global investors seems to be going more anxious about India consumption and growth, complemented by continued monetary accommodation by developed nations in  order to propel growth. Indian Government recently raised the cap of foreign investments by $ 5 billion in federal and corporate bonds with a residual maturity of over five years. The step is viewed very positively in the sense that the ease of limit in federal bonds will take out interest rate pressure from the banks. The ease in corporate bonds issued by companies in the infrastructure sector will fill the estimated financing requirement of $1 trillion in the five years to 2017.


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U.S. central bank kept its benchmark interest rate in the range of zero to 0.25 percent .The bank said that they are prepared to provide additional accommodation in the light of slower economic recovery. The statement raised the speculation that the bank may buy more treasuries down the year. Weaker growth has still kept the unemployment at above 9 percent levels and reflects that companies are still cautious. The U.S. markets surged to highest level since May as the orders for durable goods rose the double of market expectations.

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Another happening that market is keeping an eye on is the political pressure building on Obama administration to take a stance on the China’s currency policy. The yuan has appreciated about 2 percent against the dollar since the central bank said it would pursue a more flexible exchange. However U.S. wants to see more rapid and “significant” rise in the yuan’s value.

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With the visible positivity across the globe, Indian markets are maintaining up move and managed to close above the psychological mark of 6000 levels on the weekly basis. The weakness in the dollar index clearly strengthens the equity markets and lead to the fresh breakout especially in US and European counterparts.

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One should maintain the stance of buying on dips. The Midcap stock may provide handsome return in the near future. Nifty has support between 5900- 5810 and Sensex between 19640-19200 levels.

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It appears that bullion counter is taking advantage of every opportunity and making new highs now and then on rock solid fundamentals. Weaker than expected growth in manufacturing and services industries of euro zone, sovereign debt crisis in Ireland, plummeting dollar index amid some poor economic releases fuelled rally in bullions. Negative tone of global economy capped the upside of base metals and energy  counter, even fall in dollar index could not give much impact and they appeared shy to break the resistance. Local currency appreciation locked the movement of commodities. This week is full of event risk. GDP data of US and UK, consumer confidence data and employment data of US may give further direction to  commodities. Crude oil is witnessing lackluster trading and thus moving in range on ambiguity in the world economy. Energy counter needs big news for further direction. Spices should revive in this week.

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Weekly Update 20th – 24th September 2010

Global market rallied in the week gone by after Japan intervened in the currency market to weaken yen and Chinese and U.S. economic reports raised the confidence of global growth. Stocks rallied in Japan after it intervened in the currency market to stem the Yen appreciation. The yenweakened to 85.85 per dollar after climbing as high as 82.88 per dollar earlier inthe week, the strongest level since May 1995.

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Continuous reversal in Yen may leadto more investment in exporter companies in the region. The concerns overmoderate expansion in China got erased as the data showed that Industrial Production expanded 13.9 percent in August. The data gave optimism on global growth and led to rally in metals.

Consumer sentiment in U.S. fell to one year lowof 66.6 from 68.9 in August increasing the risk that consumer will cut back on theirpurchases.In India, RBI, in order to anchor inflationary expectations and as a step tocontinue the process of normalisation of the monetary policy instruments raisedborrowing costs for the fifth time this year.

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It raised Repurchase (repo) Rate to 6percent from 5.75 percent, and the reverse-repurchase rate to 5 percent from4.5 percent. It seems that for now, RBI has done enough to contain inflationarypressures and as the repo rate is the operative policy rate therefore thetransmission from policy rates to market rates has strengthened.

Going forward,we expect that RBI would give due weigh to the macro economic situation ratherthan only inflationary pressures before doing any adjustment in monetary policyinstruments.We expect the market to remain firm as even advance tax numbers were higherthan that of last year. Next week U.S. Federal Reserve is expected to give stimuluspackage in its meeting scheduled on 31st September seeing the worrisomesituation of high unemployment and weakness in construction activity asindicated by the latest Fed Beige book finding.

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With the positivity from the global front, we are steadily approaching near the alltime high zone and likely to extend the up move in the coming weeks withrequired consolidation for the sustainable move. Nifty has support between 5700-5550 and sensex between 19200-18800.Another round of quantitative easing by the fed amid falling dollar proved supportive to the bullions and once again lovable gold made life time high acrossthe bourses. Though it made life time high on MCX as well but upside was limiteddue to appreciation in local currency. Silver is also rocking on heavy investmentdemand. Even base metals recovered as many central banks maintained low borrowing cost but slow recovery is capping the upside of industrial metals. Evenfalling crude oil is indicating ambiguous trend. This week, bullions may see aconfident move further on fundamental and technical support.

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Nevertheless,appreciation in currency may lock the price movements to some extent on domestic bourses. FOMC meet regarding interest rate will provide further direction to commodities. Expect a volatile week for agro commodities as expiryof September contract is scheduled on Monday.

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COMMODITY WEEKLY COMMENTARY 13th – 17th September 2010

Silver along with gold once again shoot up last week as international prices tested $20 and $1255 respectively on COMEX division. Each time a rise in gold hits the headlines, it steals the limelight from silver. But this time silver has not only followed rallies in gold, but usually out performed, as can be seen in a fall in the gold/silver ratio. Prices went towards north last week as global stocks tumbled and the euro slipped on renewed fears about the health of the global economy.

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Base metals witnessed see saw movements as highly volatile currency market is rolling the prices in both direction. However, bias remained down side as fresh concerns about the health of the European banking sector fed a wave of risk reduction in the broader market and helped drag red metal (copper) prices away from four-month highs. Energy counter also remained under pressure as investor’s eye U.S economic strength and demand on fuel, while the dollar gains against a basket of foreign currencies amid the jittery sentiment. In other related news the dull hurricane season also limiting the upside in prices. The U.S. National Hurricane Center was monitoring three tropical systems in the Atlantic basin, one approaching the Caribbean Sea and two near Africa’s west coast. The NHC said cloudiness and showers over the Leeward Islands and northeastern Caribbean Sea were associated with Gaston’s remnants, but the system had just a 20 percent chance to become a tropical cyclone.

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Despite holiday’s shortened week, agro commodities witnessed active trading. After a noteworthy decline, oil seeds and edible oil counter was somehow able to cap the downside on the news of better soyameal export amid short covering in overseas market. Crude palm oil was also trading up. On the other hand upside was limited on the absence of fresh demand.

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Favourable weather and better outlook of crop shed the gain of wheat futures. Northward journey of maize futures supported by multi month’s higher prices in CBOT surprised the market players. Spices counter traded with downside bias moreover. Chilli, jeera, turmeric and cardamom were down on lower offtake in physical market. Turmeric futures were in complete grip of bears on lower demand in spot market. It touched multi week lows on NCDEX as well. It was only pepper in spices counter which propped up on fresh buying. Mixed sentiment in guar compelled guarseed to trade in slim spread whereas guargum was rangebound with upside bias.

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Chana continued to witness downtrend following lower demand in the domestic market.

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