Posts Tagged ‘economic recovery’

Weekly Update 30th August – 3rd September 2010

The global equity markets fell in the week gone by after a record plunge in U.S. home sales and slowing export growth in Japan raised concerns that developed economies are losing momentum. However losses in the equity markets were recouped during the end of the week when Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to safeguard the recovery and growth and stronger-than-forecast U.S. economic growth eased concern the world’s biggest economy will return to recession. According to the EPFR Global, risk aversion led global investors to put some $5.2 billion into bonds and withdrew a net $7.1 billion from equity funds worldwide.

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European Central Bank President Jean-Claude Trichet called for immediate fiscal austerity measures. He said that the lesson from past history is that dealing with the legacy of accumulated imbalances is not simply a duty to be fulfilled after the economic recovery, but rather an important precondition for sustaining a durable recovery.

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However he was skeptical of the argument that cutting back deficits now would risk derailing the recovery. Bank of Japan is expected to hold an emergency meeting next week to consider more monetary easing and Japan’s Prime Minister is expected to give economic stimulus package as strong appreciation in Yen to 15 year high against the dollar is threatening the export-led recovery.

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On the domestic front, RBI in its Annual Report said that the growth outlook for the current fiscal year is robust but inflation has emerged as a major concern. It said that it would remain committed to contain generalized inflationary pressures through its calibrated monetary policy based on careful assessment of risks to both inflation and growth.

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Going next week, investors will keep an eye over the GDP growth number for the first quarter of 2010-2011 to be released on 31st August. The expansion in the economy is expected to match up the growth of 8.6 percent seen in the last quarter of the fiscal 2009-2010. Stock specific activity, specifically in Auto and Cement stocks may not be ruled out as companies would be reporting monthly production numbers.

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In comparison to world indices, Indian markets are still in the better position as it fell marginally lower as comparised to global counterparts. On the weekly closing basis, dollar index is struggling around 83.50 levels which may trigger technical recovery across the board especially in the US and European markets. Accordingly, one should opt for staying long for the next week till our levels withhold. Nifty has support between 5350- 5300 and Sensex between 17800-17600 levels.

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Risk aversion in the financial markets may continue to keep the safe haven appeal of bullions intact. US GDP came slightly lower than previous figure but was better than expected. Fed comments to safe guard the US economy may extend some support to the base metals counter however the continued weakness in the housing and job sector may keep the upside capped. Fed commented that the central bank will act if “unexpected developments” cause the recovery to falter. Euro zone GDP and US housing data next week will guide the movement in crude oil and base metals pack in near term. Crude oil may trade choppy as marginal short covering can be witnessed in near term.

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In Agri pack bears may keep the selling pressure intact especially in spices complex. Oilseeds complex may witness an increased activity as the fundamental storyline in the global markets as well as in the domestic, have improved. India’s new business opportunity of soy meal export to Thailand & China’s strong export demand for U.S soybean crop coupled with strength in crude oil futures may provide psychological support to attract buying. Outflow of Potato stocks from UP cold storages and farmers eying the exports to Pakistan may provide some support to the prices.

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Physical Rubber Shows Mixed Trend on Friday

Physical rubber showed a mixed trend on Friday, the market was a bit apprehensive with the import news and took cautious approach. Meanwhile, the Rubber Board has reported that the natural rubber production in the country was picking up and the production during April-July 2010 was 223250 tonnes compared with 209575 tonnes in the previous year.

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Spot price for RSS-4 variety remained unchanged at Rs 189 while RSS-5 closed at Rs 179.50 compared to its previous closing of Rs 180.

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In the futures market for August delivery for RSS 4 improved to Rs 190.50 compared to its previous closing of Rs 189.99 while the September delivery closed at Rs 176.95 compared to its previous closing of Rs 175.56 on the National Multi Commodity Exchange.

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Whereas Copper prices decline for the second straight day on Friday

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Copper prices pared their early gains to close lower for the second-straight day on Friday, on getting disappointing employment data from the United States, the investors got concerned about a slowing economic recovery. Though, some pullback was seen with decline in energy markets putting the near-term demand prospects for the red metal bright.

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Copper for September delivery closed lower by 1.05 cents to finish at $3.3430 per lb, after trading in a range of $3.3250 and $3.38 on the Comex metals division of the New York Mercantile Exchange. On the London Metal Exchange, benchmark copper shed $30 to close at $7,370 a tonne.

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MALAYSIAN RINGGIT…… the best performing Asian currency

The “ringgit” is the official currency in Malaysia which is often known as the Malaysian dollar. The Malaysian dollar or ringgit is sub divided in to 100 sens, which are known as cents in foreign markets.

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Performance

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The Ringgit Malaysia (RM) is one of Asia’s best performing currencies in 2010 which has appreciated by 6% against the US dollar, 19% against the euro and 16% against the British pound. There were several factors which contributed to the stellar performance of the ringgit. Amongst them include Malaysia’s better than expected economic recovery, the central bank’s monetary tightening policies, the New Economic Model (NEM), speculation on revaluation of China’s yuan coupled with speculative funds inflow into Malaysia’s financial system. The currency’s strength isn’t likely to affect exporters as Europe’s sovereign debt crisis may increase capital flows to Asia & inter-Asia trade is expected to keep Malaysia’s exports at healthy growth levels. Malaysia’s exports to Europe make up some 10 per cent of its total exports.

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The Pros And Cons Of Stronger Ringgit …

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Pros:

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·Encourages the import of capital goods, which contribute to the innovation and automation of industries in the country.

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·Improves the living standards of the people by increasing their purchasing power through cheaper imports and lower inflationary pressure.

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Cons:

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·A stronger ringgit could pose challenges to the exporters of this export dependent export-dependent Malaysia such as palm oil companies.

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·The stronger ringgit usually trims the refiner margins as crude palm oil feedstock for refined products is priced in the currency. Any wild swings in the ringgit hurt refiners. “For every 100 basis points’ appreciation in the ringgit, refining margins fall by US$2-US$4 a tonne.

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·“For example, if the ringgit keeps strengthening, where previously you would collect 3.2 for every US dollar you earn, now you get only 3.1,”

Impact On Palm Oil Industry

Palm’s advance is also limited by the firmer ringgit, which has become a key determinant in price direction of late. In other words, CPO price could not be separated from the economics of converting crude palm oil, priced in ringgit, into dollar-based refined palm oil products.

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The benchmark August futures on the Bursa Malaysia Derivatives Exchange are again moving in a range searching for direction from here. Immediate support is at 2,395-2,400 (Malaysian ringgit) MYR/tonne while resistance is at 2,520 MYR/tonne followed by 2,550 MYR/tonne on the upside.

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Ringgit gain from revaluation of Yuan?

A higher yuan could actually spell good times for the Asian currencies. In other words, Ringgit would further increase as Chinese Yuan is expected to increase and ringgit typically increases with the appreciation of Yuan. China, including Hong Kong, is Malaysia’s biggest export market. A stronger yuan will be a bigger strength for China – more buying power for Malaysian goods, which would help boost shipments.

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Nonetheless, the ringgit’s upside might be somewhat limited. Malaysia being an export-oriented economy, the central bank might intervene to limit gains in the ringgit to ensure Malaysia’s exports remain competitive.

CRUDE OIL ECONOMIC RECOVERY IS HELPING CRUDE RALLY

Crude oil, the life blood of the economy, is rallying to highest levelssince 2008 highs, indicating that the global economy is back on track which is also supported by rise in key global equities markets. In the first quarter of 2010, front-month NYMEX crude prices rose 5.6%.

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Crude oil prices have negated the hike in dollar index and crude stockpiles in US. Traders have placed fresh bets on a rise in demand affirming a faster pace of economic recovery in the US. Crude prices have more than doubled since dropped below $35 late in 2008, but still significantly lower as compared to the record high neaar $147 a barrel in july 2008.

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Positive economic indicators of US like PMI, home sales and employment data are showing that economic recovery is back on track and that will increase fuel consumption. Data showing an unexpected increase in pending home sales and a survey result indicating service sector growth added to investors’ confidence in the US economy .

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The institute of supply management’s non-manufacturing index rose to 55.4 in the month from 53.0 in february, sharper than economists expectation for a modest increase to 53.6.

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A report from the National Association of Realtors the pending home sales index rose 8.2% to 97.6 in february,  from a downwardly revised 90.2 in the previous month, countering consensus expectations for a 51 decline.

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According to EIA “Projected economic growth this year is higher in this forecast, with U.S. real GDP growing by 208% and world oil consumption weighted real GDP growing by 3.4%”. Given expected oil demand growth in 2010, oil prices should continue to firm despite expected increase in both non- OPEC and OPEC production this year.

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According to EIA” projected growth in domestic crude oil production is more moderate in 2010, increasing by about 210,000 bbl/d” Crude oil future outlook looks promising as it is driven mainly with global economic recovery. And summer demand in US will also keep the prices well supported.

Company Insiders Sold Shares Worth Rs.15K Crores

Company Insiders Sold Shares Worth Rs.15 K Crores

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Company insiders, including top management and promoters, have sold shares in their firms worth about Rs.14,950 crore in the past three months.

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This was most perhaps done to cash in on the steep rise in prices during the recent rally and signaling that the market may be fully valued.

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“Insiders are cashing out some part of their shares.

That shows the market is no longer undervalued,” says Jagannadham Thunuguntla, head of research at SMC Capital Ltd.

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Since the Bombay Stock Exchange’s benchmark hit a low of 8,160 points on 9 March earlier this year,

the 30-stock Sensex, India’s most widely tracked index, has risen 103.81%

as foreign investors injected $15.42 billion (Rs 72,165 crore) into the markets, enticed by the prospect of economic growth.

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🙂

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While major Western economies are barely emerging from a deep recession,

India’s economic output is expected to expand at least 6%, according to estimates by the Reserve Bank of India (RBI), making it the second fastest growing major economy.

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🙂

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Insider sales include those by promoters, top management such as chief executive officers and chief financial officers, as well as sales of treasury stock.

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While insider trades are reported to the stock exchanges, only the number of shares is disclosed.

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Often, such sales take place over a period of time.

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SMC Capital has played a role in the compilation of the data.

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Insider transactions also include share purchases.

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On an overall basis, company insiders bought shares worth around Rs 5,194 crore during the same period, or around one-third of the Rs 14,950 crore of shares sold.

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🙂

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A large part of these have happened in the last six months because people are still sceptical about the sustainability of the recovery.

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“No one has any conviction on how long this bull market will last,” said SMC’s Thunuguntla.

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🙂

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Indeed, with the pace of economic recovery in the West still under question, a potential debt default by Dubai government-promoted entities rocked global markets last week,

sending the Sensex down 3.3% in just two days of trading.

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RBI Emphasizes on Managing the Economic Recovery, For Now :)

RBI emphasizes more on Managing economic Recovery

 

The Reserve Bank of India, country”s Central bank, has said that managing economic recovery is now its focus area and the first phase of monetary tightening will arrest inflation without hurting growth.

RBI Executive Director Deepak Mohanty was found quoting  that at present, the focus around the world and also in India has shifted from managing the crisis to managing the recovery.

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He said that withdrawing soft monetary policy, which was initiated to weather the financial crisis is the key challenge.

“The key challenge relates to the exit strategy that needs to be designed, considering that the recovery is as yet fragile but there is an uptick in inflation, though largely from the supply side, which could engender inflationary expectations,” he said.

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Besides this, Mohanty said that the first phase of exit has been initiated by RBI in its monetary policy review in October 2009.

That was done mainly by withdrawal of unconventional measures taken during the crisis.

RBI, in its monetary review in October has raised the requirement for banks to hold portion of the deposits in cash, gold and government securities to 25 per cent.

Moreover, it had also done away with special liquidity provision for banks to provide money to mutual funds and others.

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US Recession has Ended, Economy Growing Again : Economists

US Recession has Ended, Economy Growing Again

US Recession has Ended, Economy Growing Again

The worst US recession since the Great Depression has ended, but weak household spending as the labour market struggles to create jobs will slow the pace of the economy’s recovery, according to a survey released this month.

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The survey released by the National Association of Business Economists found that  80% of the respondents believed the economy was growing again after four straight quarters of declines.

Experts believe that the recession has ended, but that the economic recovery is likely to be slow.

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The current recession that started in December 2007 is the longest and deepest since the 1930s.

It was triggered by the collapse of the US housing market and the ensuing global credit crisis.

The NABE survey, conducted in September, predicted real GDP growth expanding at a 2.9% pace over the second half of this year.

Output for the whole of 2009 is expected to contract 2.5% and next year, rebound to 2.6%.

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Much of the anticipated recovery was seen driven by businesses rebuilding their inventories after aggressively reducing unwanted stocks of unsold goods to match weak demand.

Investment in the residential market would also add to growth, with most respondents in the survey convinced that housing market downturn was close to coming to an end.

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The survey predicted that the unemployment rate would rise to 10% in the first quarter of 2010 and edge down to 9.5% by the end of that year.

The labor market was not expected to regain most the jobs destroyed in the current recession until 2012 or beyond.

However, the weak labour market would continue to slow down the recovery.

Labour market slack, combined with weak wage growth, meant inflation would not be an obstacle to the economic recovery.

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