Posts Tagged ‘dollar index’

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.

.

.

 

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.

.

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.

.

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.

.

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.

..

.

 

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

 

COMMODITY WEEKLY COMMENTARY 4th – 8th October

Once again international gold prices tested their new highs last week as prices breached the psychological level of $1300 and silver marked the 30 year high on COMEX division. However local gold prices were mostly remained sideways during the week amid stronger rupee and profit booking which limited the upside in prices.

.

Nevertheless, silver once again overshadowed gold movements and surged high to claim 33000 mark on MCX. In base metal pack copper along with nickel, zinc and lead started the week with positive energy but dull economic data from U.S and Europe economies pressurized the prices in later part. However improved Chinese  manufacturing data once again underpinned the prices and supported copper and nickel to end the week in green zone.


.

Earlier, shanghai copper dropped to its lowest in more than a month last week as China’s move to curb property prices dented sentiment, but losses were limited by improving demand prospects and ongoing weakness in the dollar. In energy counter crude oil settled up last week helped by data showing a drop in U.S. crude and product inventories.


Further fall in dollar index also helped the prices to move up. U.S. crude stocks fell 475,000 barrels last week, data from the Energy Information Administration showed. U.S. distillate inventories fell by 1.27 million barrels in the week to Sept. 24, counter to analyst expectations for a 300,000 barrel build.


.

In agro commodities spices pack witnessed see saw moves during the week and remained volatile. Pepper futures ended the week with negative impression amid weak exports and low trading activity. As per Spices Board data, pepper exports from India have gone down by 5% in volume term during April-August 2010 as compared to same period last year. Jeera futures also traded on a negative note during the week on extended selling pressure backed by weak domestic and export demand. Expectations of rise in acreage under jeera crop this season have also supported the down side.

.

In oil seeds section soya bean and mustard remained under pressure as factors like bumper soya crop expectation and pick up in fresh arrivals to the spot market led the market to show a negative trend. The chana futures traded on a positive note for most part of the week retreating from previous losses on fresh buying from retail sector.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Weekly Update 6th-10th September 2010

Stocks rallied this week as the manufacturing in U.S. and China expanded at faster pace reassured investors about the economic recovery. The ISM manufacturing increased to 56.3 for a sizable eight tenths gain from July.

.

China’s PMI rose to 51.7 from 51.2, signaling that the economy’s slowdown is stabilizing. In U.S. payroll jobs in August slipped 54,000 after falling a revised 54,000 in July for the third straight month but there was a moderate gain in the private sector.

.

Government jobs dropped 121,000 while private non farm employment continued to rise, gaining 67,000 in August. Also on the positive side, wages were up. President Barack Obama said there is “no quick fix” for the economy and will unveil new ideas next week to boost growth and hiring. Chief of Bank of Japan said that the bank is ready to take more actions after giving 10 trillion yen ($118 billion) to a bank loan facility and the nation’s Prime Minister said that the Japanese government is ready to take “bold” action on the currency if necessary which is threatening its exporters.

.

India being second biggest emerging economy showed yet another strong performance in terms of growth. The economy saw an expansion of 8.8 percent in the first quarter ending June, the fastest pace in two and a half years giving an imprint of strong underlying domestic demand. Trade data showed that exports rose for the ninth straight month in July 2010, growing an annual 13.2% to $16.24 billion and Imports for the month rose 34.3% to $29.17 billion, widening the country’s trade deficit to $12.93 billion. Exports during the April-July period rose 30.1% to $68.63 billion.

.

Being a short trading week, stock specific activity is expected to rule in the market as investors would like to see Industrial Production numbers for the month of July scheduled to be released on Friday, 10th September. In line with rebound in the global indices, Indian market too witnessed sharp bounce after testing the major support zone of 5350 levels. As expected, dollar index traded with the negative bias throughout the week and likely to be sideways to negative bias in the coming days as well. Keeping in the mind all the cues, one may stay long with trailing stop loss strategy or book partial profit on rally to avoid any notional loss. Nifty has support between 5400-5350 and Sensex between 17800-17600 levels.

.

Currency play together with some improvements in economic releases invited bulls in industrial metals while energy pack could not retort positively. Bullions continued to rock on investment demand. Now there is a state of confusion on the subject of the further trend in commodities. Dollar index has taken the crucial support of 82 and moved northward. Base metals gave knee jerk reaction on weak unemployment data of US at the same time as precious metals are trading near multi week high. Various interest rate meeting may inject volatility in commodities. Buying is still intact but upside appears to be limited in short run in base metals. Furthermore, base metals and crude oil are moving in a different direction that is a cause of concern for the market players. It is creating an ambiguous situation and indicating unclear trend of commodities.

.

Weekly Update 23rd – 27th August 2010

The buying continued in the Indian markets and helped broader indices to surge to two and a half year highs. While negative sentiments in the global markets led to profit booking with major markets closing in the negative on weekly basis. The Federal Reserve Bank of Philadelphia’s general economic index dropped to the lowest reading since July 2009 to minus 7.7 this month, signaling contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

.

The unemployment claims unexpectedly shot up by 12,000 to 500,000 last week more than the economist estimates. U.S. recovery is fading and European governments would struggle to reduce their deficits are the worrisome factors that are lingering on in the investors mind. The producer price index in U.S. increased 0.2 percent following a 0.5 percent drop in June.

.

Excluding food and energy costs it climbed 0.3 percent signaling that world’s largest economy may not face deflation moving with slower growth. China, the Emerging Market frontier that saw an unparallel growth in the past is facing threats of faltering demand for exports as U.S. and European consumers are cutting spending, rising wages and the risk of bad loans from record lending by banks in the past. Japan Economy saw an expansion of an annualized 0.4 percent in the quarter ending June pushing it into third place behind the U.S. and China.

.

In India, with good monsoon season the prospects of harvest have improved and now it is widely believed that inflation would come down by the end of this quarter. The primary articles index rose 14.85% in the year to 7 August 2010, lower than previous week’s annual rise of 15.66%. The food price index rose 10.35%, lower than previous week’s annual rise of 11.4%, as prices of vegetables, potatoes and onions fell.

.

Going forward the domestic market is expected to remain firm with the support of foreign investment.

.

However, investors will continuously monitor the global developments after some of the recent disappointing data coming from U.S.markets. Trend of Indian Stock Markets is up though other world markets are coming under pressure especially the European and US markets. Dollar index is showing some strength which is giving jitters to commodities. But till the trend of our stock markets is up, one should be playing on the long side with a cautious approach. Nifty has support between 5400-5350 and Sensex between 18000-17800 levels.

.

Gold has benefited from last few weeks as investors are escalating the insurance like metals in their portfolio. However, gold silver ratio is rising once again as silver is moving in a range due to falling base metals. With the looming weakness in various economies, gold may invite bulls further. After touching many week highs, base metals washed off their previous gain on unexpected drop in Philadelphia Fed survey and bad employment data. Now the pulse of base metals is likely to be guided by the outcome of housing and durable goods data of US this week. Weakness in equity market, swelling inventories, slow recovery may weigh on the crude prices further, which already hit six week low last week. Dollar gain against euro is dampening the commodities demand, compelling CRB index to trade range bound with bearish bias.

.

Nevertheless, lower level buying cannot be denied in between.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

CARDAMOM SET TO A NEW HIGH :)

Even if with hue and cry in the commodities market with dollar index noticing terrific movements with a weaker rupee, cardamom the “Queen of all spices” price movement in 2010 began its journey with Rs. 1131 per kg, giving the investors a return of 27% (approx) in few months of time.

.

Cardamom futures (May Contract) at MCX commodity bourse is now trading at life time high at Rs.1445/kg.

.

Cultivation:

.

Cardamom starts in bearing capsules three years after planting. There are three distinctive types of cardamom grown in India viz., Malabar, Mysore and Vazhukka type. Malabar and the Guatemalan are the two major commercial varieties of small cardamom in the world. Indian cardamom is slightly smaller. After the first crop, higher and sustained yields are obtained in subsequent years up to the tenth or fifteenth year, depending on the type cultivated and upon the level of management.

.

Production in India:

.

Production of cardamom is mostly concentrated in the ever green forests of Western Ghats in South India. It is grown in Kerala, Tamil Nadu and Karnataka.

.

Large Cardamom is cultivated in the Sub-Himalayan region of North Eastern India, Nepal and Bhutan. Kerala is the largest producer of cardamom with a share of around 70% in the total production. Karnataka shares around 20% and rest comes from Tamil Nadu. India consumes almost 90% of the domestic production and exports only 5 to 8% of its total production. India also exports by-products of cardamom like cardamom oil and oleoresins to the European countries.

.

Vandanmedu, Kumily, Thekkady in Kerala, Bodinayakanur, Pattiveeranpatti in Tamil Nadu, Saklashpur, Mercara, Medikeri, Mangalore in Karnataka are the major trading centers in India for cardamom

Production in world:

.

Cardamom is also referred as “grains of paradise”. The world production of cardamom is around 35000 metric tonnes per year. Guatemala is the leading producer of this spice with a production of around 23000MT and around 66% share in the global production. India is now the second largest producer of cardamom in the world with production of around 12000 metric tonnes of cardamom every year. Tanzania, Sri Lanka, El Salvador, Vietnam, Laos, Cambodia and Papua New Guinea are the major cardamom growing countries.

.

EXIM scenario

.

In India, the Average production for Cardamom is around 12000 tonnes per year, but in 2009-10 the production is expected to fall down to around 8000 tonnes. With the domestic consumption very robust and exports looking good, cardamom prices are seen moving to record levels in the current season. Global shortage due lesser production in Guatemala is also adding the momentum of prices. Exports have gained almost 12-15% of its production during the first ten months of the last financial year that ends in March this year. Exports during April-January stood at 1,500 tonnes, up almost 283% from last year and it is the highest level in last 10 year, while in value terms the figures were estimated to be around Rs 118.71 crore, up 206% during the same period last year.

.

Concluding with the view that each commodity has its own fundamentals, demand and supply profile, which drive its prices. Though, the secondary driver, dollar index often gives impact on the commodity prices significantly.

Commodity versus Dollar Index: The Myths and Facts

Dollar index has noticed terrific movements. The perfect time to sell commodities! Does this thumb rule always works?  Well, let’s find out the myths and facts …

.

.

The USDX is a trade-weighted basket of the US dollar versus other major currencies. Sometime volatility in dollar index can be attributed to the major movements in other currencies. Here lets go with an example.

.

.

USDX has seen around 23% rise in just over 4 months. It was the biggest move the USDX has ever made over such a short span in this index in entire history! For this the strength of USD is not counted rather the weakness of other major currencies amid some improvement in US data’s are taken into consideration. At the same time, commodities could not see steep fall in the prices due to seasonality. It happens many times. Yes, I agree that dollar index give impact on the prices, sooner or later, but, remember, as a secondary driver not as primary.

.

Return Of Various Commodities and Dollar Index From 2000-2010(In %age)


Chart 1 reveals the secondary nature of the dollar’s role in commodities prices. During the secular bull run between 2000 to 2010, commodities gave incredible performance. It gained between the wide ranges of 64% to 410%. On the contrary, dollar index lost around 23%. It is showing that supply and demand far outweighed the dollar.

.

Let’s find another answer to the question. Why to watch dollar index while trading in commodities?  What psychological impact does dollar index have on commodity?

.


It is in fact very complicated to synthesize fundamentals into tradable whole as in many commodities credibility of data is questionable and data comes on wide intervals. Other factors that give impact on the prices are not easily reachable to all traders. It is also true that commodities fundamentals develop gradually and cannot change overnight and thus it is unable to give massive moves in a short span of time. Many times  price movements in commodities is sentiment  news driven.

.

Here dollar index gain importance, as transaction of many commodities are done in terms of USD worldwide, hence any fluctuation in USD gives significant impact on the commodity prices. Moreover, the dollar’s levels are always available in real-time and consequently it is uncomplicated watching the movements of USD to game commodities rather than exploring into their fundamentals. However, we also cannot deny that in a particular period dollar index becomes the primary driver of commodity.

.

Price movements of CRB and Dollar index (2000-2010)


Source: SMC                                                          Chart 2

Chart 2 is showing negative correlation between USDX and CRB but percentage of volatility is more in CRB. Even in 2009, CRB recovered by whopping 20% whereas dollar index only fell by 5%.

.

.

As on whole USDX has proportionately negative correlation with commodities but it is not the main driver. Nevertheless, sometime relationship between dollar index and commodities are positive. For example; in the time period of December 1998 to September 2000 relationship between crude oil and USDX was positive for a long period. Many times commodities and USDX move in similar direction in perception of the health of the global economy. Fear and uncertainty surrounding the global economy stimulate safe haven buying in both.

.

.

Concluding with the view that each commodity has its own fundamentals, demand and supply profile, which drive its prices. Though, the secondary driver, dollar index often give impact on the commodity prices significantly. Hence, it is advisable that take it as a significant indicator, but rely on seasonality and own fundamentals of commodity before the investment of your money.

Weekly Update 12th-16th April 2010

The markets continued with their upward momentum despite the concerns arising that Greece may default on 304.2 billion euros ($405.2 billion) of its debt. Trichet expressed confidence that Greece won’t default & many believe that IMF may come in for a bailout.

.

Concerns also arose over the huge gains that markets world over has seen in a year. All in all the optimism about the strength of the recovery in global economy suggested by various positive economic data kept the market pace intact. According to National Institute of Economic and Social Research, UK GDP expanded by 0.4% in the first quarter matching the increase seen in the last quarter of the previous calendar year.

.

Huge bank credit offtake in the last fortnight ending 26 March 2010 to the tune of Rs. 1.15 lakh crore after the continuous signs of Industrial,service & external sector recovery will increase the faith among the investors about the economy. The recent run up in the markets hassomewhat discounted the expected good corporate results & the increase in policy rates by the RBI to avoid the danger of generalised inflation in the economy. From the market activity, it looks that the Midcap & small cap would remain the favorites among the investors due to relative valuations. In the coming week, focus of the market would be on the Infosys results & guidance & market would also look on to the IIP numbers, especially the capital goods to gauge the momentum in the Industrial activity.

.

Trend of all world markets is up and so have the Indian Stock Markets posted a 9 week continuous rally. The falling dollar index and the rising rupee gave steam to various asset classes which all moved up. The debate between the problems of Greece or other European nations will be unending but till the trend is up, one should look at longs. Nifty has support between 5250-5150 levels and Sensex between 17700-17300 levels.

.

Recent buoyancy coupled with projected tightness in the supply of various commodities is signifying the bottoming out of global economy.

.

Improvement in housing, job and retail sales data are stimulating fresh buying in commodities, especially in metals and energy. Remarkable jump in dollar index is unable to give much impact on commodities as they are trading on their own fundamentals. Nevertheless, several commodities hit multi months high, hence cautious approach is advised here. Appreciating rupee, which gained more than 5% in just nine weeks, is most likely to eat up the volatility in domestic exchanges. Price movements could be locked in agro commodities as well, particularly in spices, as export activities have become subdued due to the same reason of appreciation in rupee.

.

Stay Tuned for More Updates :)